European Management Journal 37 (2019) 760e771

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European Management Journal

journal homepage: www.elsevier.com/locate/emj

Dynamic capabilities and employee participation: The role of trust and

informal control
Veit Wohlgemuth a, *, Matthias Wenzel b, Elisabeth S.C. Berger c, d, Martin Eisend e
a
HTW Berlin, Business School (FB3), Treskowallee 8, 10318, Berlin, Germany
b
European University Viadrina, Chair of Management and Organization, Große Scharrnstraße 59, 15230, Frankfurt(Oder), Germany
c
University of Hohenheim, Entrepreneurship (570C), Wollgrasweg 49, 70599, Stuttgart, Germany
d
Technical University Munich, TUM School of Management, Bildungscampus 2, 74076 Heilbronn, Germany
e
European University Viadrina, Chair of Marketing, Große Scharrnstraße 59, 15230, Frankfurt(Oder), Germany

a r t i c l e i n f o a b s t r a c t

Article history: While burgeoning research has shown the relevance of dynamic capabilities in terms of managers
Received 28 May 2018 identifying and pursuing business opportunities, much less is known about the role of involving em-
Received in revised form ployees without managerial status in those activities. In this paper, we examine the impact of employee
23 January 2019
participation on the enactment of dynamic capabilities. The results of our survey-based linear regression
Accepted 28 February 2019
Available online 2 March 2019
analysis show that employee participation is positively related to the dynamic capabilities of a firm.
Furthermore, we hypothesize and find that managers can facilitate employee participation through both
trust in and informal control of subordinates. Our findings also suggest a positive relationship between
Keywords:
Dynamic capabilities
informal control and dynamic capabilities, and point to employee participation as a mediator in the
Employee participation relationship between trust and dynamic capabilities. Our results extend the literature on dynamic ca-
Informal control pabilities by highlighting and demonstrating the important role of employee participation in identifying
Trust and pursuing business opportunities through dynamic capabilities as well as the relevance of trust and
informal control therein.
© 2019 Elsevier Ltd. All rights reserved.

1. Introduction
Since their inception (Eisenhardt & Martin, 2000; Teece, Pisano,
& Shuen, 1997), dynamic capabilities have become a key explana-
tion for how firms sustain their survival in dynamic environments
(Schilke, Hu, & Helfat, 2018). The ambition of the research agenda
on dynamic capabilities is to provide a holistic understanding of
this process, rather than offering narrow or isolated insights (Teece,
2014). Much of this literature, however, focuses on the role of
managers in harnessing dynamic capabilities (Adner & Helfat,
2003; Helfat & Peteraf, 2015; Martin, 2011), exploring the indi-
vidual underpinnings such as managerial cognition, social capital,
and human capital (Helfat & Martin, 2015) that enable managers to
enact dynamic capabilities (Rodrigo-Alarco
n, García-Villaverde, &
Ruiz-Ortega, 2018; Sarkar, Oleksyi, & Clegg, 2018; von den
* Corresponding author.
E-mail addresses: veit.wohlgemuth@htw-berlin.de (V. Wohlgemuth),
mwenzel@europa-uni.de (M. Wenzel), elisabeth.berger@uni-hohenheim.de
(E.S.C. Berger), eisend@europa-uni.de (M. Eisend).
Driesch, da Costa, & Flatten, 2015). In turn, as Vogus and Rerup
(2018) highlighted, employees without managerial status consti-
tute a main, if not the most important, foundation for sustained
organizational survival, as they are “a crucial source of emerging
opportunities and threats that underlie superior relative perfor-
mance” (p. 227). Yet, despite these insights, we know little about
the role of lower echelon employees in the dynamic capabilities
framework (Salvato & Vassolo, 2018).
We address this lacuna by drawing on the literatures on trust
and informal control (e.g., Bachmann, 2001; Long & Sitkin, 2018;
Perks & Halliday, 2003; Thomas & Ambrosini, 2015; Weibel,
2007). These two complementary concepts are hugely relevant as
a potential trigger of employee participation and therefore to the
relationship between employee participation and the enactment of
dynamic capabilities. While trust by managers creates freedom for
employees to engage in organizational activities through positive
expectations by the supervisors with regards to achieving desired
outcomes (Rousseau, Sitkin, Burt, & Camerer, 1998), informal con-
trol creates normative pressure to engage in such activities through
the supervision and enforcement of guiding norms and values by
peers and managers (Eisenhardt, 1985; Ouchi, 1979). Nevertheless,

https://doi.org/10.1016/j.emj.2019.02.005
0263-2373/© 2019 Elsevier Ltd. All rights reserved.
 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771
while the important role of managerial trust and informal control
in fostering organizational activities is widely acknowledged, we
know little about the role of these concepts to facilitate the
enactment of dynamic capabilities through employee participation.
Accordingly, the current study seeks to answer the following
questions: How does employee participation affect the enactment of
dynamic capabilities? and Can trust and informal control facilitate
dynamic capabilities through employee participation?
To examine these questions, we develop hypotheses based on
the literatures on dynamic capabilities, employee participation,
managerial trust, and informal control. We then test these hy-
potheses in a survey-based regression analysis study using a sam-
ple of small German manufacturing firms. Our findings show that
employee participation is positively related to dynamic capabilities.
Our results also highlight the important role of trust and informal
control in this relationship, showing that they both spur a firm's
employee participation. Furthermore, our findings show that
informal control has a positive direct relationship with dynamic
capabilities.
These findings make several contributions to the literatures on
dynamic capabilities, trust, and control. First, the study extends the
understanding of dynamic capabilities by examining and specifying
the important but under-researched role of employees in the dy-
namic capabilities framework (Salvato & Vassolo, 2018). Second, we
show that managerial trust in employees supports employee
participation and, therefore, indirectly nurtures dynamic capabil-
ities, thus highlighting trust as crucial but under-represented
aspect of dynamic capabilities. Third, we extend the literature on
control by demonstrating its relevance in hitherto under-examined
dynamic settings (Mishra & Mishra, 2013) and specifying the
important role of informal control as an enabler of employee
participation and, indirectly, of dynamic capabilities that prior
research with its focus on formal forms of control (Cardinal,
Kreutzer, & Miller, 2017) does not fully illuminate.
2. Theory and hypotheses
Fig. 1 provides an overview of our conceptual model and hy-
potheses. We now elaborate on the theoretical foundations of the
specified components and their relationships in more detail.
2.1. Dynamic capabilities and employee participation
Organization and management research has promoted different
and partly nonoverlapping definitions of dynamic capabilities (see
Peteraf, Di Stefano, & Helfat, 2013, Schilke et al., 2018, and Wilden,
Devinney, & Dowling, 2016, for comprehensive overviews). Previ-
ous research (e.g., Ambrosini & Bowman, 2009; Arend & Bromiley,
2009; Barreto, 2010; Danneels, 2008) exposed the confusion in the
understanding of the concept. To provide an example, some defi-
nitions describe dynamic capabilities as routines, while others
Fig. 1. Visualization of hypotheses.
761
claim the opposite (Wohlgemuth & Wenzel, 2016). The missing
consensus in definitions of the seminal papers led to some frus-
tration with this literature (Schilke et al., 2018). In keeping with the
“increasing convergence among definitions of the dynamic capa-
bilities construct [toward] the more recent integrative definition by
Helfat et al. (2007)” (Schilke et al., 2018, p. 399), we define dynamic
capabilities as “the capacity of an organization to purposefully
create, extend, or modify its resource base” (Helfat et al., 2007, p. 1).
This concept provides a holistic framework for explaining the
foundations of sustained competitive advantage in dynamic envi-
ronments based on a firm's abilities to sense opportunities and
threats, to seize these opportunities by mobilizing resources and
routines, and to reconfigure its base of resources (Jantunen,
Ellonen, & Johansson, 2012; Teece, 2007, 2012, 2014). This holistic
definition also puts forward an understanding of dynamic capa-
bilities as being based on strategic flexibility in problem solving
(e.g., Li & Liu, 2014), rather than a domain-specific capacity (e.g.,
Schilke, 2014).
The diversity in definitions, conceptualizations, and operation-
alizations led to an underspecification of antecedents and conse-
quences of dynamic capabilities, which made the concept appear
overly inclusive and elastic (Williamson, 1999). To clarify the
concept and its antecedents, researchers have begun to explore the
microfoundations of dynamic capabilities by examining the un-
derlying processes (e.g., Wilden et al., 2016). Much of this research
focuses on activities and characteristics of involved individualsd-
most notably, managersdas microfoundations of dynamic capa-
bilities (Adner & Helfat, 2003; Martin, 2011). This stream of
literature has insightfully unpacked the important role of man-
agers’ cognition, social capital, and human capital as central drivers
of dynamic capabilities (Helfat & Martin, 2015; Rodrigo-Alarco
n
et al., 2018; Sarkar et al., 2018; von den Driesch et al., 2015).
Much less is known, however, about the role of employees as their
counterparts in the holistic dynamic capabilities framework
(Salvato & Vassolo, 2018).
Employee participation equips employees with the skills,
knowledge, and resources to bring in their renewal ideas, to
contribute to making informed strategic decisions, and to imple-
ment them effectively through the distribution of power and in-
formation, as well as the creation of motivators (e.g., Bode & Singh,
2018; Conger & Kanungo, 1988; Lawler, 1992; Schaarschmidt,
2016). In doing so, employee participation offers potentials for
supporting the underlying pillars of dynamic capabilities, namely a
firm's ability (1) to sense opportunities and threats, (2) to seize
these opportunities by mobilizing resources and routines, and (3)
to reconfigure its base of resources (Teece, 2007, 2012, 2014).
Employee participation practices are an attempt to reverse Taylorist
processes of problem-solving and centralized decision-making.
According to Lawler (1992), top-down decision-making hinders
businesses to adapt to rapid change because it does not permit
sophisticated decision-making and motivation for effective orga-
~ er (2004) showed that
nizing. In this vein, Ketokivi and Castan
employee participation reduces managerial position bias, which
produces better strategic decisions. These insights point to
employee participation as an important enabler of dynamic capa-
bilities. However, despite this potential, we know little about the
role of employee participation in the dynamic capabilities frame-
work (Salvato & Vossler, 2018).
Heyden, Oehmichen, Nichting, and Volberda (2015) argued that
higher functional background heterogeneity on management
boards relates to an exploratory orientation of a business as it
triggers and enriches exchange of knowledge and information. The
same rationale seems likely to apply to employee participation,
given that the purposeful creation, extension, and modification of a
business's resource base probably require not only the
762 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771
contributions of a single manager or a management team but also
the support of other human resources (Leonard-Barton, 1992).
Managers who abstain from the daily operations of their business
might be vulnerable to misperceptions of the business and its
environment (Mezias & Starbuck, 2003). Subordinates are an
especially valuable source of information that can support the
identification and pursuit of opportunities through dynamic capa-
bilities (Teece, 2012). Consequently, Narayanan, Colwell, and
Douglas (2009) suggested that all organizational membersdboth
managers and subordinatesdshould be involved in the underlying
processes of dynamic capabilities.
Nevertheless, employee participation may support not only the
sensing but also the seizing and transformation processes. Ac-
cording to Teece (2007, 2014), dynamic capabilities only exploit
their strategic value if firms not only sense opportunities and
threats but also make the decision to modify their base of resources
and routines, and implement the desired organizational changes.
Employees may be more likely to preserve the status quo rather
than to support a transformation process, especially in the presence
of path dependence (Sydow, Schreyo €gg, & Koch, 2009). Employees
may also be unwilling to flag situations that would contribute to
adaptation decisions (Schreyo €gg & Kliesch-Eberl, 2007). Therefore,
given the motivational power of employee participation (Lawler,
1992), we argue that it is important for businesses to involve em-
ployees in the renewal process driven by dynamic capabilities.
Intrinsic motivation is an important factor in individual perfor-
mance (Hackman & Oldham, 1980). The effort that subordinates
bring to a task increases with their active participation because the
belief that one can make a difference leads to intrinsic motivation
(Gibbons & Henderson, 2012). For example, Hodson, Martin, Lopez,
and Roscigno (2013) found that employee participation leads to
proactive actions and improved task proficiency, whereas directive
leadership has no effect on proactive actions. Having a say in the
introduction of new work processes also creates the motivation to
do what is required to make them work (Spreitzer & Mishra, 1999).
Therefore, motivation through employee participation can over-
come defensive forces such as emotional resistance, political
pressures, and cultural bias (Salvato, 2009). In turn, such defensive
forces might surface as a reduced pace in the seizing process, thus
potentially imposing a tradeoff on employee participation in the
enactment of dynamic capabilities. In this vein, Kownatzki, Walter,
Floyd, and Lechner (2013) argued that quick organizations generate
superior performance in dynamic environments. Related to
employee participation, this implies that involving multiple actors
might increase the reflexivity of the organization but reduce the
reaction speed (Baum & Wally, 2003; Eisenhardt, 1989). However,
this lost pace in the sensing and seizing process might be offset by a
quicker transformation processes due to reduced defensive forces
through employee participation, given that involving employees
show greater commitment to the decisions that they co-create
(Spreitzer & Mishra, 1999).
In addition, employee participation has a positive effect on
managers (Spreitzer & Mishra, 1999). Delegating tasks to em-
ployees frees managers to spend time and effort on other duties.
Managers will also become aware of the strategic relevance of the
daily activities of lower level employees (Salvato & Rerup, 2011).
Managers often fail to transform businesses because of missing
relational capital (Gibbons & Henderson, 2012). Quicker sensing
through employee input and increased motivation of employees at
the seizing and transformation stages are likely to accelerate and
support the modification of the resource base in response to op-
portunities and threats.
H1. Employee participation relates positively to dynamic
capabilities.
2.2. Trust, informal control, employee participation, and dynamic
capabilities
A key challenge of employee participation in dynamic envi-
ronments is the design of coordination mechanisms that guide
sensing, seizing, and transformation processes (Eisenhardt &
Martin, 2000; Teece, 2007). Most coordination mechanisms
require or aim to preserve organizational stability. Bureaucratic
structures are a paradigmatic example here. Volberda (1998) even
suggested that dynamic capabilities have to assert themselves
against the opposing force of organizational structure. He regarded
structural or technical coordination mechanisms as ordinary ca-
pabilities that require adaptation but are not supportive in adap-
tation processes. Therefore, businesses require more flexible,
management-driven concepts of coordination, leadership, and
human resource management in dynamic environments to deal
with the speed of transactions (Davis, Eisenhardt, & Bingham,
2009; Eisenhardt & Martin, 2000). Managerial trust in employees
and informal control of employees are alternate, flexible,
management-driven coordination mechanisms across echelons
that can cope with operational flexibility and constant organiza-
tional adaptation (Fink & Kessler, 2010; Holtgrave, Nienaber, &
Ferreira, 2017; Peres-Freije & Enkel, 2007; Thomas & Ambrosini,
2015). Therefore, we argue that these coordination mechanisms
foster both a firm's employee participation and its dynamic
capabilities.
Trust, employee participation, and dynamic capabilities. Trust is “a
psychological state comprising the intention to accept vulnerability
based upon positive expectations of the intentions or behaviors of
another” (Rousseau et al., 1998, p. 395). This coordination mecha-
nism probably plays an important role in involving employees. In
fact, employee participation requires a certain degree of trust, given
that vulnerability and positive expectations are antecedents of
employee participation. Involved employees are empowered to act
partly independently (Lawler, 1992). Accordingly, because the ac-
tions of involved employees are not fully under the control of
managers, there is scope for opportunistic, incompetent, or igno-
rant behavior (Spreitzer & Mishra, 1999; see also; Latusek & Vlaar,
2018). Therefore, managers who involve their employees have to
accept vulnerability and live with the consequences of potentially
unintended behavior. This means that managers are unlikely to
foster employee participation if they do not expect the employees
to perform well.
The underlying pillars of the deployed trust definition, namely
acceptance of vulnerability and positive expectations, thus seem to
support employee participation. In this context, the willingness to
accept vulnerability is not a desire to be hurt but rather the positive
expectation that the employees will not harm the firm (Mo €llering,
2006). In addition, a trustor's general propensity to trust requires
trustworthiness of the trustee to create this positive expectation
(Mayer, Davis, & Schoorman, 1995). McAllister (1995) differentiated
between cognition-based signals of trustworthiness, which show
the (technical) ability at a domain-specific task, and affect-based
signals, which indicate value-congruence rather than self-
centered, reward-seeking behavior. As prior research suggests
(Wohlgemuth, Berger, & Wenzel, 2016), both types of signals,
cognition-based and affection-based, should be present to create a
trustful relationship. To catch those signals, a more extensive ex-
change is beneficial. Specifically, Go
mez and Rosen (2001) argued
that trust on the part of managers' correlates with a more extensive
exchange between employees and supervisors and a higher quality
relationship. This high-quality relationship then leads to greater
employee responsibility and autonomy, and thus to greater
participation in strategic decisions. Information sharing in such
high-quality relationships is only likely to occur when there is trust
 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771
between actors (Hommelhoff & Richter, 2017; Perks & Halliday,
2003; Swift & Hwang, 2013). Luhmann (1979) argued that trust
can become a self-fulfilling prophecy of positive participation. Be-
ing trusted creates advantages, such as greater responsibility and
autonomy. Accordingly, trustees try not to betray the trustor, as
they do not want to jeopardize potential benefits. Moreover, trust
also creates an openness to sensing and absorbing the ideas of
employees and legitimizes their activities in retrospect (Burgelman,
2002). Therefore, trust not only enhances the proactive actions of
employees but also supports the legitimization of past activities by
employees through management, and the learning of managers
derived from employees.
H2. Managerial trust in employees relates positively to employee
participation.
In turn, trust is likely to play an important role in the dynamic
capabilities framework as well. A complex extension or modifica-
tion of the base of resources and routines, as indicated in the dy-
namic capability perspective, is a situation with a risky outcome
that is stressful (Vogel & Güttel, 2013). Trust is a mechanism to deal
with that complexity and reduce it to a feasible level (Luhmann,
1979). The studies that analyze the relation of trust and risk in
diverse contexts consistently associate trust negatively with
perceived risk (e.g., Koller, 1988; McLain & Hackman, 1999).
Therefore, it is likely that managers perceive organizational adap-
tation processes as less risky when they trust their subordinates
and are, thus, more willing to engage in open-ended adaptation
processes. Therefore, we hypothesize the following:
H3. Trust relates positively to dynamic capabilities.
As we already proposed a positive relationship between
employee participation and dynamic capabilities (H1) and trust and
employee participation (H2), the latter hypothesis implies that our
model also predicts that employee participation will mediate the
relationship between managerial trust in employees and dynamic
capabilities.
Informal control, employee participation, and dynamic capabilities.
Informal controldalso called social controldrefers to the super-
vision of norms and values by peers and managers (Eisenhardt,
1985; Ouchi, 1979). The concept of informal control relates to
organizational culture. Businesses with a strong culture tend to
have strong informal control (Ouchi, 1980). Therefore, strong social
control means strongly shared social norms among employees and
managers.
Collectively shared social norms can be strong, although the
personal norms of the individuals within the group differ. Inter-
estingly, many studies support a correlation between social norms
and observed behavior but not always with personal norms and
observed behavior (Bicchieri, 2014). A potential reason might be
that individuals deliberately choose the course of action that
minimizes costs when sanctions, i.e., informal control mechanisms,
are present (Bicchieri, 2014). While individual perceptions of norms
might differ, shared and enforced norms lead to clarity in decision
situations and the judgment of actions toward abiding with the
norms by peers, thus making the desirability of actions predictable
and consistent in terms of social support and social rewards (Kahn,
1990). The predictability that results from strong informal control
mechanisms and a strong culture increases the perception of pro-
cedural and distributive justice. Therefore, in such contexts, the
outcomes of social judgments, i.e., whether their actions will lead
to sanctions and rewards, are clear for the involved actors. For
example, as Saks (2006) showed, employees who have strong
perceptions of justice are more likely to feel obliged and be more
involved than those who perceive justice to be weak in the
763
workplace.
The perceived judgment of actions by peers has previously been
linked to employee participation (Colquitt, 2001). Employees are
more confident when undertaking participative behavior because
behavioral uncertainty is reduced, and desirable activities and the
rewards for them are clear. Therefore, informal control complies
with the idea of employee participation in that it not only sets
boundaries for employees but also empowers them in undertaking
their tasks. Moreover, strongly shared social norms lead to greater
commitment to the business, as well as a stronger identification
with it. The result is to increase proactive behavior and engagement
in strategic activities (O'Reilly, 1989; Romeike, Fleschut, Nienaber, &
Schewe, 2017).
Therefore, we hypothesize that reliance on social control leads
employees engaged in supervisory activities to be more strongly
involved than if social control is weak.
H4. Informal control relates positively to employee participation.
Informal control also “match[es] a more dynamic and opaque
world” (Cardinal et al., 2017, p. 562) in which dynamic capabilities
are particularly valuable for businesses (Teece et al., 1997). In turn,
although much of the prior research on dynamic capabilities (see Di
Stefano, Peteraf, & Verona, 2014) and control mechanisms more
generally (Cardinal et al., 2017; Langevin & Mendoza, 2013; Lueg &
Radlach, 2016) has focused on formal forms of controldnamely,
behavior control and output control (Eisenhardt, 1985; Ouchi,
1979)d, these forms are less relevant in the context of this study
because they relate to “codified institutional mechanisms that are
officially sanctioned” (Cardinal et al., 2017, p. 567). By sanctioning
the deviation from existing organizational procedures, formal
control belongs to those coordination mechanisms that prevent,
rather than spur organizational change and do not empower sub-
ordinates (Knight & Haslam, 2010) in the spirit of employee
participation.
Ouchi (1979) pointed out that informal control is a feasible
alternative when task programmability is low, and the measur-
ability of an outcome is low, as is the case during permanent
adaptation stages. Although informal control might also involve the
congruence of an actor's behavior with developed organizational
norms and, thus, strongly shared norms among organizational
members and the sanctioning of deviations, it is less invasive and
more flexible than its formal alternatives (Ouchi, 1979; Thomas &
Ambrosini, 2015). In fact, many supportive effects may result
from informal control. Shared norms and a common understanding
of the direction the organization seeks to pursue reflect a similar
mindset, which is likely to reduce resistance to new ideas in a
sensing process and to accelerate decision-making in a seizing
process. The same applies to a later transformation stage (Thomas,
Sargent, & Hardy, 2011). Increased social cohesion among organi-
zational members is also likely to ease the coordination of the
adaptation processes. Social cohesion allows for more liaison de-
vices that facilitate decision-making on the spot rather than within
hierarchies (Volberda, 1998). Commonly agreed upon organiza-
tional adaptation faces less resistance. A simplification of coordi-
nation processes and a reduction of formal structures tend to
support a business's ability to balance efficiency and flexibility
(Davis et al., 2009). Therefore, informal control is likely to be a
viable mechanism for guiding employees through adaptation pro-
cesses. As Ouchi (1979) pointed out, informal control is particularly
useful when task programmability is low, and the measurability of
an outcome is also low. This is the case during modifications on the
basis of resources and routines.
H5. Informal control relates positively to dynamic capabilities.
764 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771

As we already proposed a positive relationship between Table 1

employee participation and dynamic capabilities (H1), and Sample composition.

informal control and employee participation (H4), the last hy- Characteristics Absolute values Percent
pothesis implies that our model also predicts that employee Respondents' experience in firm (years)
participation will mediate the relationship between informal con- 5 19 7.63
trol and dynamic capabilities. 6e10 17 6.83
11e15 40 16.06
16e20 45 18.07
3. Method
21e25 61 24.50
25e30 23 9.24
3.1. Data 31 44 17.67
Respondents experience in industry (years)
5 10 4.02
The sample was drawn from small German manufacturing firms
6e10 13 5.22
(SIC 3000-3999), identified through the Hoppenstedt company 11e15 27 10.84
database, one of the largest business data providers for German 16e20 26 10.44
firms. For this research, we considered small firms, which we 21e25 42 16.87
defined through the existence of only two hierarchical levels, with a 26e30 39 15.66
31e35 35 14.06
single manager as head of the firm, and the absence of any hier-
36 57 22.89
archical level between the lowest level employees and the manager Firm size (employees)
(see Arend, 2013). Including these firms in our sampling frame 5e10 102 40.96
enabled us to address the measurement of trust as follows. 11e15 62 24.90
Rousseau et al. (1998) define trust as a psychological state, thus an 16e20 32 12.85
21e25 24 9.64
inherently individual-level phenomenon. A collective entity cannot 26e30 17 6.83
trust, as individual psychological states among the members might 31e35 5 2.01
differ. Instead, collective entities can only be the object of trust. The 36e40 7 2.81
most suitable way of addressing the gap between a firm-level Firm age (years)
10 7 2.81
phenomenon and an individual's psychological state may be the
11e20 49 19.68
identification of conditions where they are not separable. A single 21e30 69 27.71
manager often heads a small business. Therefore, how the man- 31e50 59 23.69
agement treats employees is a result of a single person's decision 51e100 49 19.68
and based on an individual's psychological state. The individual 101 16 6.43

manager's trust in employees therefore equates to the trust of the

firm's management in employees. A further advantage of selecting
small firms is that trust and control relationships can be particu-
larly influential when employees know each other personally
(Arend, 2006; Nilsson & Mattes, 2015). Small businesses also tend
to change and adapt more frequently as both growth and learning
effects are quicker and the firm is more flexible (Arend, 2013).
We collected data using surveys of managers. A primary focus
on managers as key informants is appropriate as the theoretical
framework is based on the managers' willingness to trust, control,
and involve employees (Spreitzer & Mishra, 1999). Key informant
bias is generally less of a concern when surveys target top managers
of small businesses (Gerhart, Wright, & McMahan, 2000), and they
are the single respondents who can offer the most information
(Arend, 2013). The respondents had a supervisory responsibility
and an average 21.1 years of experience in the firm and 26.8 years of
experience in the industry. Such levels of experience imply the
respondents possess relevant knowledge of both their business's
characteristics and the industry's volatility and developments (see
Table 1). We contacted 7,821 identified firms to determine that each
has just one hierarchical level below top management and that
executive decisions are the responsibility of a single individual.
Among the businesses contacted, 1,229 fulfilled the criteria. They
were sent an email directly after their positive response with a link
to an online survey. All recipients received several reminder emails.
In time, we received 282 completed surveys.
A closer investigation of the surveys revealed that some par-
ticipants reported firm sizes that made the existence of just one
echelon below the top manager very unlikely. To avoid jeopardizing
the validity of the data, 33 surveys that reported a firm size of above
40 employees were dropped from the sample, leaving a sample of
249 firms. We conducted a sensitivity test and the results remained
essentially similar when the removed cases were included in the
analysis.
Table 1 shows further characteristics of the firms in the sample.
On average, 14.87 employees worked in the firms included in the
sample. Although the businesses are small, only very few of them
are young. On average, the firms are 41.84 years old. Therefore, the
firms are unlikely to share characteristics of start-ups, which are
often associated with a greater extent of dynamic capabilities
(Arend, 2013; Zahra, Sapienza, & Davidsson, 2006).
To test for nonresponse bias, we first compared early (the
quickest third as measured by days between first contact and
response) and late respondents (the slowest third measured by
days between first contact and response) (Armstrong & Overton,
1977). The results of the comparison of means revealed no signif-
icant differences between early and late respondents in any of the
variables. Furthermore, we compared the revenue reported in the
Hoppenstedt company database of responding and nonresponding
businesses with a t-test and could not find a significant difference
(t ¼ 0.200; p ¼ 0.841).
We applied several procedural methods to safeguard against
common method bias. First, the online platform intermediary
guaranteed anonymity, reducing the participants' tendency to
answer in a socially desirable way. Second, careful attention to
wording and translation as well as intensive pre-testing procedures
reduced survey item ambiguity. Third, we separated independent
and dependent variables in the survey to avoid respondents
drawing conclusions about the proposed relationships between the
variables, and accordingly, conscious matching of responses to re-
lationships appears unlikely (Podsakoff, MacKenzie, Lee, &
Podsakoff, 2003). Fourth, we contacted a second informant in 17
cases. To determine inter-rater reliability, the intraclass correlation
(1) [ICC(1)] was calculated (Bliese, 1998; Shrout & Fleiss, 1979). All
variables exceeded Bliese’s (1998) 0.1 cut-off. Fifth, we statistically
tested for common method bias using Harman’s (1976) single factor
test. If common method bias is a serious problem, a single latent
factor should account for a large proportion of the variance in the
 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771
sample. However, the unrotated principal component factor solu-
tion suggests that such a bias is not an issue. All items loaded on one
factor that explained 27.475 percent of the variance. As the value is
below 50 percent, this test indicates that common method bias is
unlikely. Following Podsakoff et al. (2003), we conducted another
statistical test and added a common latent factor to the model using
the AMOS software package. The model fit remained essentially
similar after the inclusion of the factor (model without common
latent factor: c2/d.f. ¼ 1.572, model with common latent factor: c2/
d.f. ¼ 1.548).
3.2. Measures
We measured dynamic capabilities with the scale developed by
Li and Liu (2014). The scale divides dynamic capabilities into the
sub-dimensions: sensing, seizing, and transformation capacity. The
sub-dimension sensing mainly refers to the reflexivity of the
decision-making process, whereas the dimension seizing refers to
the speed of the decision-making process. The scale therefore
captures the underlying processes of dynamic capabilities outlined
by Teece (2007) and the potential trade-off between reaction speed
and reflexivity when involving employees. Furthermore, the scale
presents dynamic capabilities as firm-spanning rather than as an
individual process (Schreyo €gg & Kliesch-Eberl, 2007).
The scale for employee participation was taken from Uhlaner, van
Stel, Duplat, and Zhou (2013), who developed the scale for a small
firm innovation context to conduct joint tests with process inno-
vation and product innovation. Therefore, the scale seems to fit well
with the sample and the deployed dynamic capability scale.
Trust was measured with the behavioral trust inventory scale
(Gillespie, 2012). This scale captures willingness in the dimensions
reliance and disclosure (Zand, 1972). The instrument adopts
Rousseau et al.’s (1998) definition of trust, incorporating both the
willingness of vulnerability and positive expectations.
The scale for informal control was taken from Jaworski,
Stathakopoulos, and Krishnan (1993).
Similar to other studies on dynamic capabilities (e.g., Barrales-
Molina, Bustinza, & Gutie
rrez-Gutie
rrez, 2013), we controlled for
environmental dynamism, using a scale developed by Tan and
Litschert (1994), which captures dynamism in the form of uncer-
tainty and frequency of change. Furthermore, we controlled for firm
size, measured by the number of employees (Arend, 2013; Searle
et al., 2011), and firm age, defined as the number of years since
the foundation of the firm (Arend, 2013; Danneels, 2008;
Protogerou, Caloghirou, & Lioukas, 2012).
We translated all scales into German to suit the sample of small
German manufacturing firms. We evaluated the translation using
the back-translation method (Brislin, 1970). The validation of the
translated survey included several steps. Five researchers and
twelve practitioners reviewed the scales to ensure face validity. We
conducted the practitioner tests in different ways to capture a broad
range of possible challenges. Four practitioners participated in a
cognitive interviewing pre-test to ensure an equal understanding of
the concepts' meanings and the items’ phrasings. Another test
involved what is referred to as conventional pre-testing within the
sampling frame (Visser, Krosnick, & Lavrakas, 2000). We surveyed
dyads of supervisors and subordinates for this pre-test.
3.3. Measurement properties of constructs and analytical procedure
Table 2 presents Cronbach's alphas (a), composite reliabilities
(CR), and average variances extracted (AVE) for all multi-item
measures. All 10 scales yielded alphas and CR above 0.7, indi-
cating reliable measures (Nunnally, 1978). We also used the AMOS
software package to assess the goodness of fit among all first-order
765
factors. The c2/d.f. is with 1.572 (c2 ¼ 1517.105; d.f. ¼ 965) satisfac-
tory and below the common cut-offs between 3 and 5 (Hair, Black,
Babin, Anderson, & Tatham, 2010). This study assesses convergent
validity using AVE and a comparison of AVE and CR (Hair et al.,
2010). The AVE for all constructs exceeds the cut-off value of 0.4
(Diamantopoulos & Siguaw, 2000). Moreover, all AVE values are
smaller than the CR of their respective constructs. We assessed
discriminant validity based on the procedure outlined by Fornell
and Larcker (1981). Specifically, we calculated the square roots of
the AVE values and compared them to the absolute values of the
correlations with the additional measures in the model. The square
root of the average variance extracted always exceeded the corre-
lations with the other variables, indicating discriminant validity
(see Table 3).
To avoid any influence of heteroscedasticity, we tested the hy-
potheses using ordinary least squares regression with robust errors
following Davidson and MacKinnon (1993). We imputed missing
data using maximum likelihood estimation in the AMOS software
package. Overall, we imputed 1.87 percent of the items in the re-
sponses. A sensitivity analysis gave similar results for datasets with
and without imputation. Factors for multi-item constructs were
extracted with varimax rotation using the SPSS software package.
We conducted a sensitivity test to compare the deployment of the
arithmetic means instead of rotated factor scores. The results for
the regression analysis remained essentially similar.
Table 3 provides the means, standard deviations, correlations,
and the square roots of the AVE for the independent variables. None
of the independent variables in the models exceed a variance
inflation factor of 2.20. Thus, multicollinearity does not appear to be
a problem in this data.
3.4. Results
3.4.1. Main effects
Table 4 summarizes the regression results for the hypothesized
direct effects and indirect effects of all independent variables on
dynamic capabilities. We computed multiple models to show the
robustness of the findings with and without the mediator employee
participation. Model 1 shows the effects of the independent vari-
ables on the mediator. Model 2 is the base model that presents the
direct effects of the control variables on dynamic capabilities.
Model 3 presents the total effects of the independent variables on
dynamic capabilities in the absence of the mediator. Model 4 pro-
vides the direct effects of the independent variables on dynamic
capabilities including the mediator.
The results in the final and full Model 4 already permit us to
draw conclusions on the support for Hypothesis 1. Employee
participation has a significant positive effect (b ¼ 0.3675; p ¼ 0.000)
on dynamic capabilities, thus supporting Hypothesis 1.
We hypothesized that trust in employees has a positive effect on
employee participation (Hypothesis 2) and a positive effect on
dynamic capabilities (Hypothesis 3). As employee participation has
a positive effect on dynamic capabilities, it might be a mediator of
the relationship between trust in employees and dynamic capa-
bilities. We analyzed the mediating role of employee participation
using the procedures outlined by Preacher and Hayes (2008).
Model 1 with the mediator employee participation regressed on
trust in employees shows that their relationship is positive and
significant (b ¼ 0.1790; p ¼ 0.0211), thus supporting Hypothesis 2.
Together with the positive effect of employee participation on dy-
namic capabilities, this indicates an indirect positive relationship
between trust in employees and dynamic capabilities. We deploy
bootstrapping to further confirm the indirect effect (Preacher &
Hayes, 2008). The confidence interval for the indirect effect of
trust in employees is above zero (0.0182e0.1190), also indicating an
766 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771

Table 2
Measurement scales.

Scales and items Source a CR AVE

Dynamic capabilities Li and Liu (2014)

Sensing 0.78 0.86 0.55
We can perceive environmental change before competitors.
We often have meetings to discuss the market demand.
We can feel the major potential opportunities and threats.
We have a perfect information management system.
We have a good observation and judgment ability.
Seizing 0.71 0.79 0.58
We can quickly deal with conflicts in the strategic decision-making process.
Under many circumstances, we can make timely decisions to deal with strategic problems.
We can remedy quickly to unsatisfied customers.
We can reconfigure resources in time to address environmental change.
Transformation capacity 0.86 0.89 0.68
Our strategic changes can be efficiently carried out.
Good cooperation exists among different functions.
We help each other with strategic change implementation.
We can efficiently improve strategic change implementation.
Employee participation Uhlaner et al. (2013) 0.85 0.88 0.71
My subordinates have originated these developments.
My subordinates have been involved in these developments.
My subordinates have been involved in the implementation of these developments.
Trust Gillespie (2012)
Reliance 0.86 0.90 0.65
How willing are you to …
rely on your subordinates' work-related judgments?
rely on your subordinates' task-related skills and abilities?
depend on your subordinates to handle an important issue on your behalf?
rely on your subordinates to represent your work accurately to others?
depend on your subordinates to back you up in difficult situations?
Disclosure 0.89 0.89 0.63
How willing are you to …
share your personal feelings with your subordinates?
confide in your subordinates about personal issues that are affecting your work?
discuss how you honestly feel about your work, even negative feelings and frustration?
discuss work-related problems or difficulties that could potentially be used to disadvantage you?
share your personal beliefs with your subordinates?
Informal control Jaworski et al. (1993) 0.91 0.94 0.68
The firm encourages cooperation between employees.
Most of the employees in my firm are familiar with each other's productivity.
The firm fosters an environment where employees respect each other's work.
The firm encourages job-related discussions between employees.
Most employees in my firm are able to provide accurate appraisals of each other's work.
The work environment encourages employees to feel as part of the firm.
The work environment encourages employees to feel a sense of pride in their work.
Environmental dynamism Tan and Litschert 0.74 0.74 0.51
(1994)
The legal, technological, economic etc. demands imposed on the organization by its environment are changing constantly.
The main agents in our organization's environment (government, providers, customers etc.) change their demands
unpredictably.
Our firm's environment requires to react rapidly to the changes that occur.
Normally, we have advance knowledge of the changes that will occur in the environment.
Additional control variables n/a n/a n/a
How many employees work in your organization? Arend (2013)
How long has your organization existed (in years)? Arend (2013)
How long have you worked in your organization (in years)? Danneels (2008)
How long have you worked in the industry (in years)? Danneels (2008)

With the exception of informal control (open questions with numbers to fill in), all questions were assessed on a 7-point Likert scale anchored with strongly disagree (1) and
strongly agree (7).

indirect positive effect on dynamic capabilities. However, Model 4
shows that the direct effect of trust in employees on dynamic ca-
pabilities is not significant (b ¼ 0.1158; p ¼ 0.1045). This indicates
an indirect effect of trust on employees on dynamic capabilities
only when using the mediator employee participation. As the direct
effect and the indirect effect are opposite in sign, an insignificant
total effect is likely (Preacher & Hayes, 2008). This is the case here
as Model 3 shows (b ¼ 0.0500; p ¼ 0.4900). Accordingly, Hy-
pothesis 3 is only partially supported.
We follow a similar procedure to test the positive effect of
informal control on employee participation (Hypothesis 4) and on
dynamic capabilities (Hypothesis 5). Model 1 with the mediator
employee participation regressed on informal control shows that
the relation between them is positive and significant (b ¼ 0.4649;
p ¼ 0.000), thus supporting Hypothesis 4. Together with the posi-
tive effect of employee participation on dynamic capabilities, this
indicates an indirect positive relationship between informal control
and dynamic capabilities. The bootstrapping test further supports
this relationship with a confidence interval above zero
(0.0916e0.2752). Informal control also has a significant positive
direct effect on dynamic capabilities (b ¼ 0.4994; p ¼ 0.000) in
Model 4 and a positive and significant total effect on dynamic ca-
pabilities (b ¼ 0.6703, p ¼ 0.000) in Model 3. This indicates partial
mediation and support for Hypothesis 5.
 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771 767

Table 3
Descriptive statistics, correlations, and discriminant validity.

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

(1) Firm size 14.87 8.35 n/a

(2) Firm age 41.84 31.56 0.00 n/a
(3) Environmental dynamism 5.02 1.20 0.04 0.02 0.71
(4) Employee participation 5.24 1.00 0.08 0.16 0.11 0.85
(5) Informal control 5.55 0.86 0.02 0.07 0.08 0.59 0.83
(6) Reliance 5.44 0.87 0.06 0.11 0.11 0.50 0.61 0.81
(7) Disclosure 4.64 1.29 0.01 0.07 0.02 0.28 0.38 0.37 0.79
(8) Sensing 4.39 0.95 0.06 0.03 0.19 0.47 0.48 0.35 0.15 0.74
(9) Seizing 5.59 0.74 0.06 0.06 0.08 0.38 0.42 0.28 0.10 0.36 0.76
(10) Transf. capacity 5.54 0.85 0.07 0.06 0.06 0.60 0.66 0.39 0.18 0.49 0.55 0.82

n ¼ 249; numbers in the diagonal show square roots of AVE; numbers below the diagonal show correlations; AVE not available for single item constructs.
| r | > 0.10 e p < 0.05.
| r | > 0.16 e p < 0.01.
| r | > 0.22 e p < 0.001.

Table 4
Results of regression analysis for direct and indirect effects.

Variables Employee Dynamic capabilities

participation

Model 1 (a-path) Model 2 (base) Model 3 (c-path) Model 4 (b- and c’-
paths)
*
Intercept 0.27 0.05 0.03 0.13
(0.13) (0.16) (0.14) (0.13)
Control variables
þ
Firm size 0.01 0.00 0.00 0.01
(0.01) (0.01) (0.01) (0.01)
Firm age 0.00 0.00 0.00 0.00
(0.00) (0.00) (0.00) (0.00)
*
Environmental dynamism 0.06 0.13 0.09 0.06
(0.06) (0.06) (0.05) (0.05)
Direct effects
*** *** ***
Informal control 0.47 0.67 0.50
(0.09) (0.07) (0.08)
*
Trust 0.18 0.05 0.12
(0.08) (0.07) (0.07)
Mediator
***
Employee participation 0.37
(0.07)

R2 0.39 0.02 0.43 0.51

*** *** ***
F 14.81 2.03 22.87 28.18

n ¼ 249; unstandardized coefficients and standard errors (in parentheses) are reported.
þ
p < 0.10.
*
p < 0.05.
**
p < 0.01.
***
p < 0.001.

3.4.2. Post hoc analyses
Two post-hoc analyses demonstrate the robustness of our re-
sults. The first test addresses differing effects of employee partici-
pation on the specific sub-dimensions of dynamic capabilities, and
our second test addresses a potential moderation instead of a
mediation.
First, one counterweight to our argument that employee
participation has an overall positive relationship with dynamic ca-
pabilities might include a potential negative effect of employee
participation due to a slower decision-making process. The “seizing”
subdimension of the dynamic-capability operationalization cap-
tures the decision-making speed (see Table 2) and, thus, enabled us
to account for this aspect in our post-hoc analysis. Specifically, we
ran the regression again with each subdimension of dynamic ca-
pabilities as a separate dependent variable. The regression model
with seizing as the dependent variable in Table 5 does not confirm a
negative relationship but suggests that employee participation is
positively related to seizing (b ¼ 0.2299; p ¼ 0.0065) and thus,
timely decision-making. The effects of employee participation on
each of the three subdimensions of dynamic capabilities do not
differ qualitatively.
Second, although the theoretical foundations of the literature on
employee participation, dynamic capabilities, managerial trust, and
informal control point to a mediation of the hypothesized main
effect when considered together (see Fig. 1), one might also check
for the plausibility of a moderation. Therefore, we tested for a po-
tential moderating effect of trust (Model 5; b ¼ 0.0187; p ¼ 0.5665),
informal control (Model 6; b ¼ 0.0743; p ¼ 0.3565), and both
simultaneously (Model 7; trust interaction effect: b ¼ 0.0425;
p ¼ 0.5285; informal control interaction effect: b ¼ -0.1023;
p ¼ 0.3867) on the relationship between employee participation
and dynamic capabilities. The results in Table 5 do not support a
moderation.
4. Discussion and conclusion
The results of the hypothesis testing suggest that employee
participation is supportive of the enactment of dynamic
768 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771

Table 5
Results of post hoc analysis.

Variables Dynamic capability dimensions Moderation

Sensing Seizing Transf. Model 5 Model 6 Model 7

Capacity

Intercept 0.19 0.15 0.16 0.15 0.20 0.18

(0.16) (0.16) (0.13) (0.13) (0.13) (0.13)
Control variables
Firm size 0.01 0.01 0.00 0.01 0.00 0.01
(0.01) (0.01) (0.00) (0.01) (0.01) (0.01)
Firm age 0.00 0.00 0.00 0.00 0.00 (0.00)
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
**
Environmental dynamism 0.14 0.03 0.01 0.06 0.07 0.07
(0.05) (0.06) (0.05) (0.05) (0.05) (0.05)
Direct effects
*** *** *** *** ***
Informal control 0.32 0.32 0.55 0.50 0.50 0.49
***
(0.08) (0.09) (0.08) (0.08) (0.08) (0.07)
*
Trust 0.05 0.08 0.15 0.12 0.12 0.11
(0.07) (0.08) (0.08) (0.07) (0.07) (0.07)
Mediator
*** ** *** *** *** ***
Employee participation 0.30 0.23 0.35 0.37 0.40 0.39
(0,07) (0.08) (0.09) (0.07) (0.06) (0.07)
Moderators
Informal control x employee participation 0.02 0.04
(0.03) (0.07)
Trust x employee participation 0.07 0.10
(0.08) (0.12)

R2 0.31 0.21 0.52 0.51 0.52 0.52

*** *** *** *** *** ***
F 16.18 6.14 29.66 25.83 27.83 24,07

n ¼ 249; unstandardized coefficients and standard errors (in parentheses) are reported. Dependent Variable in Model 5,6, and 7 is dynamic capabilities.
þ
p < 0.10.
*
p < 0.05.
**
p < 0.01.
***
p < 0.001.

capabilities. Furthermore, our findings show that both trust and
informal control spur a firm's employee participation. Our results
also demonstrate that informal control fosters dynamic capabilities.
In turn, we could not find a direct, significant role of trust in
building and harnessing dynamic capabilities; however, our find-
ings show that trust indirectly fosters a firm's dynamic capabilities
by spurring employee participation.
Our study makes several contributions to the literature on dy-
namic capabilities. One main contribution of our paper is to high-
light the importance of involving employees in the dynamic
capabilities framework. Our results show that firms, first, appear to
make more considered decisions, second, adjust more quickly, and
third, facilitate the transformation process more efficiently by
involving employees in these processes than if they do not do so.
Especially the second aspect generates counterintuitive insights.
Previous literature cautions that employee participation may slow
down decision-making processes (e.g., Baum & Wally, 2003;
Eisenhardt, 1989). Our empirical results support the opposite, i.e.,
a quicker adjustment. Thus, based on our findings, well-sensed and
quick decision-making might be possible with rigorous agent-
based organizational designs. This shows that dynamic capabil-
ities are not solely a managerial concern, as much of the previous
literature suggests (e.g., Helfat & Martin, 2015), but a firm-spanning
process in which involving employees help firms unleash the
strategic value of dynamic capabilities. Thus, our results strengthen
the role of employees in this literature, which as others suggested
(Salvato & Vassolo, 2018) has remained under-represented. By
highlighting the relevance of employee participation for harnessing
dynamic capabilities, our findings do justice to the ambition of the
research program on dynamic capabilities to offer holistic insights
into sustained organizational survival (Teece, 2014) that extend
beyond a focus on the contributions of managers to this process and
also include the important contributions that employees therein.
Another important contribution of our paper is to demonstrate
the relevance of trust and informal control in the dynamic capa-
bilities framework. Others have suggested a need for alternative,
flexible coordination mechanisms to leverage dynamic capabilities
(e.g., Eisenhardt & Martin, 2000; Volberda, 1998). This study
specifies this claim, showing that trust and informal control are two
complementary coordination mechanisms that play significant
roles in harnessing dynamic capabilities. In addition, our findings
clarify how these mechanisms become relevant therein. More
specifically, while our results show that both trust and informal
control are supportive of employee participation, the results per-
taining to the relationships of these constructs with dynamic ca-
pabilities are somewhat divergent: whereas informal control is
directly and positively related to dynamic capabilities, we could not
find such a direct relationship between trust and dynamic capa-
bilities. However, our results point to an indirect relationship be-
tween trust and dynamic capabilities, with employee participation
as a mediator. A key reason for this finding might be the purposeful
nature of dynamic capabilities (see Helfat et al., 2007). Displaying
trust in employees implies surrendering full control over the way(s)
in which employees carry out and reconfigure their work processes
and, thus, undermines the purposefulness of sensing opportunities
and threats, seizing those opportunities, and transforming the base
of resources and routines. In contrast, involving employees in these
processes is a purposeful activity; and as our results demonstrate,
this activity supports an organization's dynamic capabilities and is
spurred by trust. As a whole, our results provide a specific under-
standing of the role of trust and informal control as central coor-
dination mechanisms for harnessing dynamic capabilities, which to
date remain under-researched (e.g., Di Stefano et al., 2014).
While contributing to research on dynamic capabilities, our
 V. Wohlgemuth et al. / European Management Journal 37 (2019) 760e771
study also extends the literatures on trust and control. Research in
these areas and in dynamic settings is rare (Mishra & Mishra, 2013).
Our study fills this gap, as it illustrates the relevance of trust and
informal control for realizing the value of employee participation
for firms that operate in a dynamic setting. This implies that,
although dynamic settings may mainly require small businesses to
use flexible but “hard” coordination mechanisms such as simple
rules (Eisenhardt & Martin, 2000), which enable managers to lead
employees quickly but with tight control, trust and informal control
are also valuable in these settings despite their “softness” in this
regard. This insight also relates to a gap in the literature on control,
which has mostly examined formal forms of control (Cardinal et al.,
2017). In contrast, our study focuses on informal control. By finding
significant relationships between informal control and employee
participation and also dynamic capabilities, our study demon-
strates and specifies the relevance of this under-studied form of
control.
Our paper also provides several opportunities for future
research, some of which are derived from the limitations of our
study. Many alternative definitions of dynamic capabilities exist,
which are classified using categories such as boundary conditions
(Peteraf, Di Stefano, & Verona, 2013) or domain specificity (Schilke,
2014). The latter is concerned with dynamic capabilities being
applicable to the whole firm (Li & Liu, 2014), i.e., as a form of
strategic flexibility in problem-solving or being domain-specific,
such as alliance management and new product development as
specific types of dynamic capabilities (Schilke, 2014). We followed
the widely used (Schilke et al., 2018) understanding of dynamic
capabilities by Helfat et al. (2007), according to which dynamic
capabilities support firms in achieving a competitive advantage in
dynamic environments. Thus, we conceptualized dynamic capa-
bilities as a holistic capacity that applies to various strategic de-
cisions and is not domain-specific. As the debate about the nature
of dynamic capabilities is ongoing (Schilke et al., 2018), future
research might test our theoretical framework with other defini-
tions of dynamic capabilities. Particularly, a domain specific un-
derstanding of dynamic capabilities might provide diverging
insights. Similarly, the operationalization and measurement of
dynamic capabilities is not coherent in the literature. No standard
scale for measuring dynamic capabilities exists thus far, and most
publications rely on different instruments (Kump, Engelmann,
Schweiger, & Kessler, forthcoming). This limits the possibility of
synthesizing the results with previous findings. A further empirical
investigation after the establishment of a widely accepted and
applied scale might improve the conceptual clarity of dynamic
capabilities.
Furthermore, we encourage future research to examine the role
of organizational culture in the hypothesized relationships. Spe-
cifically, different values and norms may lead to different informal
control patterns that can affect employee participation and also the
dynamic capabilities of the firm. In SMEs, characterized by a small
amount of hierarchal levels, employees are likely to perceive a high
level of empowerment (Çakar & Ertürk, 2010). However, in large
multinational companies, a specific corporate culture with lower
perceived involvement and empowerment may suppress new ideas
or employee participation, which could undermine the positive
effects of strong informal control. Accordingly, the effect of corpo-
rate culture in multinationals on the strength of informal control in
the relationship between employee participation and the enact-
ment of dynamic capabilities represents a path for future research.
In addition, future research could examine possible interaction
effects between trust and informal control in the facilitation of
employee participation. More specifically, trust and informal con-
trol are not necessarily independent of each other. While our study
is based on the idea that trust and informal control are co-existing
769
complements (Weibel, 2007), the co-existence of the constructs
may also result in mutual substitution and trade-offs (e.g.,
Lumineau, 2017; Woolthuis, Hillebrand, & Nooteboom, 2005).
Empirical inquiries that examine this interplay could probably
clarify its outcomes.
We conceptualized trust as a psychological state and thus an
individual-level phenomenon (Rousseau et al., 1998). Accordingly,
we selected a sample of small firms with only one manager at the
top to address the personal state of one single manager and avoid
any influence from the trust of other superiors. Therefore, our re-
sults may not necessarily capture the full complexity of such pro-
cesses in firms with top management teams or multiple echelons
below top management, as multiple superiors might have
diverging trust levels. Fulmer and Gelfand (2012) provide a
comprehensive overview of trustoretrustee constellations that are
worth considering in future research. Given the prevalent role that
our findings attribute to employees, we expect trust between peers
to play an important role in the examined relationships as well.
Future research may examine this more closely.
Acknowledgement
The authors gratefully acknowledge the helpful feedback pro-
vided by Markus Vodosek on an earlier version of this manuscript.
This work was supported by the Dieter-Schwarz-Stiftung. Decla-
rations of interest: none.
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