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IT-ENABLED DYNAMIC CAPABILITIES IN NEW PRODUCT DEVELOPMENT:

BUILDING A COMPETITIVE ADVANTAGE IN TURBULENT ENVIRONMENTS

by

Pavlos A. Pavlou

A Dissertation Presented to the


FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(BUSINESS ADMINISTRATION)

May 2004

Copyright 2004

Pavlos A. Pavlou

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UMI Number: 3140534

Copyright 2004 by
Pavlou, Pavlos A.

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ACKNOWLEDGEMENTS
This dissertation study is partially sponsored by the SAP America annual dissertation
competition award, administered by the e-Business Research Center (eBRC) at Penn State University. I
would like to thank my dissertation advisor Omar El Sawy and the members o f my dissertation
committee - Delores Conway, Janet Fulk, Christoph Schlueter-Langdon, and David W. Stewart - for
their valuable help and guidance. The comments and suggestions of Cynthia Beath, Anandhi Bharadwaj,
Kathleen Eisenhardt, Wynne Chin, Blake Ives, Bill Kettinger, V. Sambamurthy, Burt Swanson, and N.
Venkatraman were particularly valuable. The dissertation was substantially benefited from presentations
at Indiana University, New York University, University o f British Columbia, University of Houston,
UCLA, University o f California at Riverside, University of South Carolina, among others. I would also
like to thank the organizers and participants of the 2002 Product Development and Management
Association (PDMA) and 2003 Roundtable Management (RTM) Collaborative Development (CoDev)
Conferences for their support and participation in the dissertations two empirical studies. Last but not
least, I would like to thank Angelika Dimoka for her encouragement and assistance during all stages of
this dissertation study.

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iii

TABLE OF CONTENTS
ACKNOWLEDGMENTS
List of Tables
List of Figures
ABSTRACT

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CHAPTER 1: RESEARCH MOTIVATION


1. Overview of Conceptual Foundations
1.1 Dynamic Capabilities
1.2 Resource Reconfigurability and Competitive Advantage
1.3 IT Competence and Dynamic Capabilities
1.4 Environmental Turbulence
2. Research Context
2.1 New Product Development
2.2 New Product Development Work Units
3. Interorganizational and Intra-organizational Relationships
4. Dissertation Contribution
4.1 Theoretical Contribution
4.2 Empirical Contribution
4.3 Managerial Contribution
5. Dissertation Overview

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CHAPTER 2: RESOURCE RECONFIGURABILITY


1. Overview of Resource Reconfigurability
2. Literature Review
2.1 The Resource-Based View
2.2 The Knowledge-based view
2.3 Dynamic Capabilities
3. Resource Reconfigurability
3.1 Resource Reconfigurability Defined
3.2 Theoretical Domain of Resource Reconfigurability
3.3 Resource Reconfigurability: A Higher-Order Construct
3.4 Relationship Among Lower-Order Capabilities
3.5 Resource Reconfigurability as a Formative Structure
4. Dynamic Capabilities in New Product Development
4.1 The New Product Development Context
4.3 Resource Reconfigurability in New Product Development
5. Interorganizational Dynamic Capabilities
5.1 Relational View
5.2 Interorganizational Dynamic Capabilities
5.3 Interorganizational NPD
5.4 Summary

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CHAPTER 3: DEVELOPMENT OF RESEARCH MODEL


1. Overview of the Research Model
2. Building a Competitive Advantage
2.1 Competitive Advantage in New Product Development
2.2 Trade-Off in New Product Development
3. Resource Reconfigurability and Competitive Advantage
3.1 Resource Reconfigurability and Core Rigidities
3.2 Competive Potential of Resource Reconfigurability
4. Resource Reconfigurability and Strategy-Environment Alignment
4.1 Strategy-Environment Alignment

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4.2 Strategy- Environment Alignment in NPD


4.3 Strategy- Environment Alignment and Competitive Advantage
4.4 Resource Reconfigurability and Strategy-environment Alignment
5. IT-Enabled Dynamic Capabilities
5.1 IT Competence
5.2 IT Competence in NPD
5.3 The Nature of IT Competence in NPD
5.4 IT Competence in NPD as a Formative Second-Order Factor
5.5 IT Competence and Resource Reconfigurability
5.6 Mediating Role of Resource Reconfigurability
6. Environmental Turbulence
6.1 Environmental Turbulence and Resource Reconfigurability
6.2 Environmental Turbulence on Resource Reconfigurability-Competitive Advantage Relationship
6.3 Environmental Turbulence on IT Competence-Resource Reconfigurability Relationship
7. Control Variables
7.1 Cross-Functional Integration
7.2 Functional Diversity
7.3 NPD Experience
7.4 NPD Knowledge
7.5 Innovation Type
7.6 Intra- Vs Inter-Organizational Work Units
7.7 Virtuality
7.8 Collaborative Development

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CHAPTER 4: RESEARCH METHODOLOGY


1. The Context for Theory Testing
2. Field Interviews
3. Measurement Development
3.1 Measurement Instrument
3.2 Pilot Tests
4. Survey Administration
4.1 Key Respondents
4.2 Sampling Frame
4.3 Data Collection
4.4 Response Characteristics

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CHAPTER 5: DATA ANALYSIS AND RESULTS


1. Respondent Characteristics
1.1 Demographics
1.2 Descriptive Statistics
1.3 Aggregate Data from Studies 1&2
2. Measurement Validation
2.1 Reliability
2.2 Discriminant and Convergent Validity
3. Second-Order Structures

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3.1 Resource Reconfigurability as a Second-Order Structure

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3.2 IT Competence as a Second-Order Structure


3.3 Environmental Turbulence as a Second-Order Structure
4. Computation of Strategy-Environment Alignment
5. The Structural Model
5.1 Mediating Role of Dynamic Capabilities
5.2 Dynamic Capabilities in Different Environments

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CHAPTER 6: DISCUSSION
1. Key Findings and Insights
2. Theoretical Implications
2.1 Implications for Information Systems Research
2.2 Implications for Strategic Management
2.3 Implications for New Product Development
4. Implications for Practice
5. Limitations and Suggestions for Future Work
6. Conclusion
REFERENCES

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LIST OF TABLES
Table 1. Definitions of Principal Constructs

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Table 2. Correlation Matrix among Objective and Subjective Performance Measures

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Table 3. Steps and Procedures taken for Calculating Environment-Strategy Alignment

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Table 4. Measurement Items of Principal Constructs

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Table 5. Respondents Demographic Characteristics

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Table 6. Descriptive Statistics for Principal Constructs

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Table 7. Composite Reliabilities for Multi-Item Principal Constructs

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Table 8. PLS Confirmatory Factor Analysis for Discriminant and Convergent Validity

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Table 9. Correlation Matrix and Average Variance Extracted for Multi-item Constructs

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Table 10. Test for Mediation for Resource Reconfigurability

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Table 11. Test for Mediation for IT Competence

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Table 12. Cluster Analysis Results and Cluster Validation

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Table 13. Control Variables on Primary Dependent Variables

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LIST OF FIGURES
Figure 1. The Nature of Resource Reconfigurability

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Figure 2: Proposed Research Model

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Figure 3. Environment Strategy Alignment in NPD

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Figure 4. IT Competence in New Product Development

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Figure 5. The Formative Nature of Resource Reconfigurability

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Figure 6. The Formative Nature of IT Competence

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Figure 7. PLS Results of Structural Model (n=l 80)

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Figure 8. PLS Results for Studies I and II (Independent Analyses)

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Figure 9. Test of the Mediating Role of Resource Reconfigurability

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Figure 10. Model Comparison for High Vs Low Turbulence Environments

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Figure 11. Competing Theoretical Views

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ABSTRACT
This study describes the process by which IT forms the basis for competitive advantage in
todays turbulent environments. Following the dynamic capabilities view, competitive advantage results
from reconfiguring existing resources to shape new functional competencies that align with the
environment. I define the core principle of dynamic capabilities into a multi-dimensional construct
termed resource reconfigurability, conceptualized as a formative second-order structure, formed by four
capabilities - coordination competence, absorptive capacity, collective mind, and market orientation.
Resource reconfigurability is proposed to influence competitive advantage, applied into a new product
development (NPD) context. The proposed role of resource reconfigurability on competitive advantage is
mediated by the alignment o f functional NPD competencies with the environment (termed strategyenvironment alignment), and it is moderated by environmental turbulence.
IT competence is posited as an antecedent of resource reconfigurability. IT competence in NPD
is conceptualized as a second-order formative structure, formed by the effective use of (a) project and
resource management systems, (b) knowledge management systems, and (c) cooperative work systems.
Environmental turbulence influences resource reconfigurability, while moderating the relationship
between IT competence and resource reconfigurability.
Data from 180 NPD managers support the proposed structural model, validating the proposed
indirect role of IT on competitive advantage through the mediating effects of resource reconfigurability
and strategy-environment alignment. The results also support the proposed second-order formative
structures of resource reconfigurability and IT competence, while supporting the proposed direct and
moderating roles of environmental turbulence. Most interestingly, the results suggest that IT-enabled
resource reconfigurability is valuable in both high and low turbulent environments.
This study contributes to the strategic role of IT in rapidly changing environments, delineating
the process by which IT influences competitive advantage through resource reconfigurability and
strategy-environment alignment. I discuss the studys implications for Information Systems research,
strategic management and the dynamic capabilities view, and the study of NPD, stressing the need for
reconceptualizing the role of IT as an enabler of dynamic processes.

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CHAPTER 1: RESEARCH MOTIVATION


Rapid technological developments, frequent changes in customer preferences, new product
introductions with short product cycles, and hyper-competition have increased the degree of change or
clockspeed of the business environment (Mendelson, 2000; Mendelson & Pillai, 1998; Sampler, 2000;
Segars & Dean, 2000; Segars & Grover, 1999; Wind & Mahajan, 1997). Changing environments destroy
the value of existing competencies (Leonard-Barton, 1992; Tushman & Anderson, 1986), dismpting
existing means of competition (D'Aveni, 1994; Sambamurthy, 2000). In todays turbulent environments,
organizations need to diversify, adapt, and even reinvent themselves to match evolving market and
technological conditions to survive and thrive (Eisenhardt & Brown, 1999; Madhok & Tallman, 1998).
An important means of differentiating in turbulent environments is innovative moves, agility,
and strategic flexibility (Barney, 1991; Sambamurthy, Bharadwaj, & Grover, 2003). Therefore, a basic
premise of this study is that a competitive advantage arises from the ability to continuously improve,
innovate, and reconfigure existing resources to develop valuable functional competencies that match
changing environmental needs (Eisenhardt & Tabrizi, 1995; Feeny & Willcocks, 1998; Hamel &
Prahalad, 1994). This ability has been formally described in the dynamic capabilities perspective (Teece,
Pisano, & Shuen, 1997). Broadly defined, dynamic capabilities are the strategic processes by which
organizations manipulate resources into new configurations of functional competencies in turbulent
environments (Galunic & Eisenhardt, 2001). This paper defines the core principle of dynamic capabilities
into a multi-dimensional construct termed resource reconfigurability. I describe, operationalize and test
its proposed higher-order nature and underlying dimensions, and hypothesize its impact on competitive
advantage. I then study the extent to which the value potential of resource reconfigurability on
competitive advantage is moderated by environmental turbulence.
Despite the importance of dynamic capabilities in rapidly changing environments, we know little
whether, how, and why IT helps manage change and facilitate resource reconfiguration, especially in
turbulent environments. Thus, the second fundamental question in this study is the role of IT as the basis
for competitive advantage in turbulent environments (Chatteijee, Richardson, & Zmud, 2001;
Sambamurthy et al., 2003).

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An emerging literature on the strategic view of IT suggests that the role of IT has evolved from
traditional support of day-to-day operations towards a strategic and transformation role (Bharadwaj,
2000; Sambamurthy, 2000; Sampler, 2000; Santhanam & Hartono, 2003; Segars & Dean, 2000;
Venkatraman & Henderson, 1999). Practitioners also tout that IT could become the driving force behind
strategic competitive advantage in turbulent environments (D'Aveni, 1994). In the Information Systems
(IS) literature, IT-enabled responsiveness and agility have been viewed as sources of competitive
advantage (Lengnick-Hall & Wolff, 1999; Sambamurthy, 2000; Sambamurthy et al., 2003; Stalk & Hout,
1990). Information economics also emphasize IT-enabled dynamic strategies to leverage new market
opportunities (Shapiro & Varian, 1999). This study proposes IT competence as a multi-dimensional
construct that indirectly affects competitive advantage by enhancing resource reconfigurability. I define
and operationalize IT competence and its core dimensions, and test its impact on dynamic capabilities and
its indirect effect on competitive advantage. I also study whether the impact of IT competence is
moderated by the degree of environmental turbulence. In sum, this study examines the nomological
network by which IT influences differential performance outcomes in rapidly changing environments.

1. Overview o f Conceptual Foundations


1.1 Dynamic Capabilities
The dynamic capabilities approach endeavors to identify sources of value creation in rapidly
changing environments (Eisenhardt & Martin, 2000; Teece et al., 1997). This approach draws from
Schumpeterian competition (Schumpeter, 1934, 1942), where competitive advantage is based on creative
destruction of existing functional competencies and creation of new ones that better match the emerging
environment. First, it is important to differentiate dynamic capabilities from functional or static
competencies. Functional competencies perform basic operational activities, such as logistics, marketing
campaigns, and manufacturing processes (Amit & Schoemaker, 1993; Madhok & Tallman, 1998;
Prahalad & Hamel, 1990). Dynamic capabilities, on the other hand, capture the creative capacity to renew
ineffective functional competencies for dynamic improvement of existing resources in response to
environmental changes (Collis, 1994). Dynamic capabilities thus govern the organizations ability to

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learn, adapt, change, and renew over time (Teece & Pisano, 1994). This is consistent with Henderson and
Cockbum (1994) who distinguish between component competence (managing day-to-day operations)
and architectural competence (developing new competencies). An example of a dynamic capability is in
new product development (NPD) where organizations must adapt to economic conditions and switch
gears rapidly, from rapid product development to efficient practices (Prahalad & Hamel, 1990). Another
NPD example is to recognize technological breakthroughs or changes in customer preferences and
quickly reconfigure resources to satisfy the new demand with new technologies before the competition. It
is not possible to enumerate all types of dynamic capabilities, such as strategic decision-making,
acquisition strategy, and alliance formation (Eisenhardt and Martin 2000). This study focuses on the
challenge o f reconfiguring existing resources to build new NPD competencies that better match
environmental contingencies in order to introduce competitive, cost-effective products.
While the existence of dynamic capabilities has been documented at an abstract level using
qualitative case studies, to the best of my knowledge, no study has attempted to theoretically specify,
operationalize, and empirically measure the core principle of dynamic capabilities. Following Eisenhardt
and Martin (2000), dynamic capabilities are embedded in organizational processes necessitating an
empirical organizational lens, rather than an economic or formal modeling one (p. 1106). By taking an
empirical quantitative lens, this study identified a set of specific dynamic capabilities, and operationalized
the underlying factors and item measures that constitute the measurement model of the resource
reconfigurability concept. Resource reconfigurability is described as the complex higher-order dynamic
capability to identify and pursue new opportunities, change rapidly and continuously, and transform
existing resources into new functional competencies to match environmental contingencies.
Drawing from an extensive literature review and field interviews, four interrelated factors were
identified, which cumulatively form the proposed second-order resource reconfigurability construct. First,
to enable coordination of existing resources, coordination competence is described as the dynamic
process of managing knowledge resources to achieve synchronization, resource allocation, and task
assignment (Crowston, 1997; Malone & Crowston, 1994). Second, to enable expansion and improvement
o f existing knowledge resources, absorptive capacity (Cohen & Levinthal, 1990; Zahra & George,

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2002a) is described as the dynamic learning process of acquiring, assimilating, transforming, and
exploiting knowledge resources. Third, since effective reconfiguration occurs in a collective fashion
(Brown and Eisenhardt 1997; Orlikowski 2002), collective mind is conceptualized as the dynamic
ability to heedfully contribute to the group outcome, represent the collective input, and interrelate
activities to adapt to situational demands and rapidly-evolving conditions (Weick & Roberts, 1993).
Finally, given the need to comprehend the environment, market orientation is proposed as the dynamic
ability to discover new opportunities in the environment and be oriented to market conditions (Brown &
Eisenhardt, 1997; Kirzner, 1973; Kohli & Jaworski, 1990; Weick, 1995). These four distinct, yet related,
mutually reinforcing capabilities are conceptualized as best practices in reconfiguring resources to adapt
to rapidly changing environments. In sum, the higher-order resource reconfigurability construct involves
identifying market opportunities (market orientation), learning (absorptive capacity), coordinating diverse
skills (coordination competence), and collectively integrating multiple streams o f knowledge (collective
mind). These dynamic capabilities are consistent with the factors proposed to manage hyper-competitive
environments (Prahalad & Hamel, 1990; Sambamurthy, Bharadwaj, & Grover, 2002; Sambamurthy et al.,
2003; Segars & Dean, 2000; Teece et al., 1997). While this set is not exhaustive, I maintain that these
four capabilities are representative in forming the resource reconfigurability concept.

1.2 Resource Reconfigurability and Competitive Advantage


Resource reconfigurability is difficult to substitute and imitate because of its complexity that
creates causal ambiguity (Lippman & Rumelt, 1982). Given its complexity and the evolutionary way it
develops, resource reconfigurability is difficult to describe, explain, transfer, or replicate. Following
Barney (1991), these attributes make it a potential source of competitive advantage. This is consistent
with Henderson and his colleagues who show that dynamic capabilities can be important sources of
enduring competitive advantage (Henderson & Clark, 1990; Henderson & Cockbum, 1994).
This study focuses on an economic reasoning toward optimizing the technical fit between the
environment and functional competencies toward a competitive advantage. Following Schumpeterian
innovation (Schumpeter, 1934, 1942), resource reconfigurability is proposed to result in a competitive

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advantage by creating better matches between functional competencies and evolving environmental
contingencies. Failure to align functional competencies with external needs may transform valuable
proficiencies into rigidities (Leonard-Barton, 1992). Resource reconfigurability is expected to shape,
deepen, and configure resources to increase their alignment with changing product-market areas (Teece et
al., 1997), thus influencing competitive advantage (Doty, Glick, & Huber, 1993; Venkatraman, 1989).

1.3 IT Competence and Dynamic Capabilities


Drawing upon the resource-based view (Lippman & Rumelt, 1982; Penrose, 1959; Peteraf,
1993), the literature has long advocated tight linkages between IT and strategy (Bakos & Treacy, 1986;
Grant, 1991; Mata, Fuerst, & Barney, 1995; Powell & Dent-Micallef, 1997; Sabherwal & Chan, 2001). IT
is at the forefront of strategy formulation, preceding or driving business initiatives by creating new
opportunities and value propositions and enhancing organizational agility (Sambamurthy et al. 2003). In
fact, IT can enable organizations to do things they could not do before and thus develop superior new
abilities (Cash & Konsynski, 1985; Ching, Holsapple, & Whinston, 1996; Clemons & Row, 1992; Day,
1994; Dewett & Jones, 2001; Porter & Millar, 1985).
A particular emphasis is paid on the role of IT in enhancing strategic flexibility in rapidly
changing environments (Sambamurthy, 2000; Sambamurthy et al., 2002, 2003; Sampler, 2000;
Venkatraman & Henderson, 1998; Wheeler, 2002; Zahra & George, 2002b), coupled by managerial
intuition (DAveni, 1994; Goldman, Nagel, & Preiss, 1995). For example, (Sambamurthy et al., 2003)
argue that IT serves as the enabling platform on which agility is built. Drawing upon this view, this study
examines the role of IT on dynamic capabilities.
Despite the immense work in the IS discipline, the IT artifact is still not well-defined or
described (Orlikowski & Iacono, 2001). In order to better understand the role of IT and its impact on
dynamic capabilities, this study proposes the concept of IT competence, which is broadly described as
the ability to acquire, deploy, and leverage IT functionality in combination or co presence with other
resources to shape and support business processes (Bharadwaj, 2000; Sambamurthy & Zmud, 2000). It is

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important to note that IT competence is different than IT investments because competence captures the
effective utilization of investments in IT functionality, not merely IT expenditures.
While the potential benefits of IT may be intuitive, the exact process by which IT competence
results in differential performance outcomes is still not well understood. Even if there is evidence that IT
leads to higher performance (Bharadwaj, 2000; Bharadwaj, Bharadwaj, & Konsynski, 1999), this study
aims to delineate the exact process by which organizations can leverage IT to support resource
reconfigurability, build effective new functional competencies, achieve strategy-environment alignment,
and generate a competitive advantages in turbulent environments.
There are at least four theoretical perspectives that explain the impact o f IT competence on
dynamic capabilities. First, resource reconfigurability is essentially an information processing routine
(Galbraith, 1977), creating the opportunity for IT competence to enhance the actors ability to process
information (Mendelson, 2000). In other words, IT competence extends the limits of bounded rationality
(Bakos & Treacy, 1986), and reduces its negative effects on decision making. Second, (Sambamurthy et
al., 2003) draw upon digital economics to suggest that IT competence creates digital options that help
intertwine IT with organizational processes to leverage digital economics (Shapiro & Varian, 1999).
Third, the ability to reconfigure resources is enhanced if resources are modular (Galunic & Eisenhardt,
2001). IT competence increases resource modularization, thus resource reconfigurability. Finally, the
proposed resource reconfigurability is essentially a knowledge management process, and it is likely to be
significantly supported by IT. The knowledge-based view suggests that knowledge driven capabilities can
enhance through efficiency, scope, and flexibility (Grant, 1995, 1996b). There is much evidence to
suggest that IT competence can enhance all three attributes. In sum, the knowledge sharing and
information processing capabilities of IT enable rapid information flows and resource reconfiguration and
facilitate organizations to successfully keep up with rapidly changing environments.

1.4 Environmental Turbulence


Dynamic capabilities are particularly valuable in high-velocity environments where firms need
to continuously adapt to rapidly changing conditions (Brown & Eisenhardt, 1997). Environmental

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turbulence reduces the value potential of existing competencies and competitive positions (Sambamurthy,
2000; Tushman & Anderson, 1986). Therefore, turbulent environments cause organizations to engage in
frequent resource reconfigurations to replace rigid configurations of functional competencies that no
longer match the new environments. In sum, I propose a positive relationship between environmental
turbulence and resource reconfigurability. In this study, environmental turbulence is proposed as a higherorder formative construct formed by frequent technological breakthroughs and changes in customer
demand and competition.
Environmental turbulence also intensifies the competitive landscape and increases the intensity
of business processes (Mendelson, 2000), escalating the importance on knowledge resources (Hitt, Keats,
& DeMarie, 1998). Thus, the impact of resource reconfigurability on competitive advantage is contingent
on environmental turbulence. Higher turbulence is likely to facilitate the positive impact o f resource
reconfigurability on competitive advantage. Using the same logic, environmental turbulence reinforces
the positive impact of IT competence on resource reconfigurability.

2. Research Context
NPD is the context in which the proposed model of IT-enabled dynamic capabilities is applied.

2.1 New Product Development


NPD has long been touted as a domain that organizations can develop a strategic advantage
(Leonard-Barton, 1992; Verona, 1999; Wheelwright & Clark, 1992). The NPD is a prime example of a
knowledge-intensive, problem-solving process where disparate knowledge resources (e.g., technical and
marketing) need to be coordinated, expanded, and leveraged to quickly build cost-effective products. In
NPD, environmental turbulence (changing market needs and technological breakthroughs) calls for
continuously different new products to match changing customer needs and increased technical
sophistication. Since existing resources need to be recombined to maintain efficiency, yet achieve high
product quality and innovation, dynamic capabilities are much relevant to NPD (Eisenhardt & Martin,
2000; Marsh & Stock, 2002). Achieving process efficiency (development cost and time to market) and

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product effectiveness (quality and innovation) represents a trade-off (Sobrero & Roberts, 2001); thus the
simultaneous achievement of both factors is proposed as a measure o f competitive advantage in NPD.
The NPD process is also becoming an important area for IS research on its own right. The NPD
process is an information-intensive process that is likely to be facilitated by IT. Despite the existence of
sophisticated IT tools (e.g., project and resource management, knowledge management, and cooperative
work systems) for NPD (Rangaswamy & Lilien, 1997), we know little about whether, how, and why
these systems can be translated into superior new products. Most work in NPD has focused on non-IT
aspects, such as project staffing and structure, external influences, and cross-functional teams; thus, the
nature and role of IT is relatively under-researched (Marsh & Stock, 2002). Examining how IT influences
dynamic capabilities to achieve NPD success is a promising area for IS research (Nambisan, 2003).

2.2 New Product Development Work Units


The unit of analysis in this study is the NPD work unit, which operates at the project level and
undertakes strategic group-level NPD processes. With the advent of sophisticated IT, work units are
becoming the primary vehicle through which productive activity is orchestrated (Moss-Kanter, 1994;
Sambamurthy & Zmud, 2000). In fact, the process level is where all business processes - dynamic
capabilities, functional competencies, and IT competence - are embedded and operate. A process-level
view has also been touted as the most appropriate level for analyzing IT effects (Barua, Kriebel, &
Mukhopadhyay, 1995; El Sawy, 2001; Mooney, Gurbaxani, & Kraemer, 1995). The unit o f analysis of in
NPD processes is often the work unit since the focus of much NPD research is the project team (Brown
and Eisenhardt 1995). While most research on NPD or dynamic capabilities have focused on firm-level
characteristics, this study draws upon Leonard-Barton (1992) who proposed a focus on enlarging the
boundaries of middle range theory and placing NPD groups under a magnifying glass to examine their
strategic potential (p. 122). In sum, NPD work units may contain several related divisions and product
dimensions, and may be formed by several departments or organizations (Galunic & Eisenhardt, 2001).

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3. Interorganizational and Intra-organizational Relationships


Similar to firm centric NPD work units, interorganizational NPD partnerships also need to
reconfigure their knowledge resources in response to changing environmental conditions (Stuart, 1998).
While dynamic capabilities have been viewed as firm-centric processes, this study integrates the inter
organizational literature with the dynamic capabilities perspective, under the aegis of the relational view
(Dyer & Singh, 1998) to argue that dynamic capabilities should likewise hold both in both intra- and also
in inter-organizational NPD processes.
From an IT perspective, recent advances in Internet-based IT enable geographically dispersed
work units to collaboratively conduct work, thus blurring traditional firm boundaries. In fact, greater use
of IT favors dispersed groups (DeSanctis & Monge, 1999; Jarvenpaa & Leidner, 1998; Maznevski &
Chudoba, 2000; Zmud, 2000). The primary example is virtual teams that accumulate and integrate
knowledge from dispersed locations, irrespective of firm boundaries (Saunders, 2000). The role of IT on
interfirm relationships is increasingly gaining attention (Bensaou, 1997; Liberatore & Stylianou, 1995;
Rayport & Sviokla, 1995), even in traditional intra-organizational areas, such as NPD (Sobrero &
Roberts, 2001). In other words, todays sophisticated IT makes it equally easy to exchange information
and collaborate, despite geographical boundaries (at least as far as IT is concerned).
In terms of non-IT distinctions, there is a growing recognition that interfirm relations offer
significant opportunities for strategic advantages. Organizations are in fact adopting a cooperative logic
and move toward strategic alliances (Bensaou, 1997; Dyer, 1997; Moss-Kanter, 1994). There is also
increased evidence for the value of combining complementary resources that reside outside traditional
firm boundaries (D'Adderio, 2001; Dyer & Singh, 1998). This is particularly hue in highly turbulent
environments where organizations urgently need new knowledge resources, which often reside outside
their firm boundaries (Henderson & Cockbum, 1994). While the resource-based view focuses on firmspecific capabilities, the relational view focuses on interorganizational relationships as the unit of analysis
(Dyer& Singh, 1998), examining how firms develop joint capabilities for collaborative advantage
(D'Adderio, 2001; Dyer, 2000; Jap, 2001). Many authors argued that competition occurs among networks
of firms (Dyer, 2000; Dyer & Singh, 1998), supply chain versus supply chain (Segars & Dean, 2000).

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The theoretical extension of dynamic capabilities to an interorganizational level of analysis


directly draws from the relational view (Dyer & Singh, 1998), which posits the relationship as the unit of
analysis and interfirm processes as the focal activities. This is consistent with (De Boer, Van de Bosch, &
Volberda, 1999) who explain that capabilities can be both of an intra- or interfirm in nature, and (Bakos
& Treacy, 1986) and who argue that the unit of analysis might consist of two or more organizations. The
practical utility of studying inter-organizational capabilities is supported by managerial empiricism (Grant
& Baden-Fuller, 1995; Konicki, 2002). Also, the literature on interfirm relationships is challenging the
traditional centrality of the organization as the main focus of research (Koza & Lewin, 1998).

4. Dissertation Contribution
This dissertation aims to make contributions to theory, empirical research, and practice, as
described below:

4.1 Theoretical Contribution


The dynamic capabilities perspective is a fruitful area for combining IS and strategic
management theory since IT can enable a competitive advantage by supporting strategic processes (Zahra
& George, 2002b). This dissertation study theorizes IT as an enabler of strategic flexibility, laying the
groundwork for redefining the role of IT in contemporary organizations that operate in turbulent
environments. Whereas IT has been regarded as a strategic necessity (Clemons, Reddi, & Row, 1993;
Clemons & Row, 1992; Clemons, 1991) or an economic imperative (Benjamin, Rockart, Scott Morton,
& Wyman, 1984), I propose a theory-driven perspective on understanding the role of IT as a platform for
building dynamic capabilities. This complements existing research on the effects of IT that focused
primarily on supporting operational processes, by stressing the role of IT on dynamic processes.
Similar to the resource-based view, the dynamic capabilities view has also been criticized due to
an alleged tautological relationship with competitive advantage (Eisenhardt & Martin, 2000). To
overcome this issue, a specific mediating variable between resource reconfigurability and competitive
advantage is herein proposed. The proposed strategy-environment alignment mediator captures the
extent to which functional competencies form a favorable configuration with environmental variables. By

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showing this mediating effect, this study empirically validates that dynamic capabilities impact
competitive advantage by creating favorable resource configurations, overcoming tautological criticism.
Resource reconfigurability is posited as a key mediating dynamic capability that enables NPD
work units to reconfigure and leverage their existing resources into new functional competencies that
better match turbulent environments. By proposing a set of mediating dynamic capabilities and strategyenvironment alignment, this study argues that IT does not have a direct impact on competitive advantage,
but rather an indirect one through both dynamic and also through aligned functional processes. This
finding partially accounts for the infamous IT productivity paradox since there may be multiple
intermediate factors mediating the direct role of IT on performance. The proposed focus should be on
leveraging IT to build dynamic capabilities and align functional competencies with the environment, as
opposed to expecting a direct relationship by ignoring these crucial intermediate factors.
By cobbling together several critical factors (e.g., IT competence, dynamic capabilities,
functional competencies) in a coherent structural model, this study delineates the process by which IT
influences performance by enabling key organizational processes. It also provides empirical support to
Grants (1995) theoretical propositions for different types of organizational resources, capabilities, and
competencies. This study thus adds granularity to the nomological network and delineates the process by
which IT leads to competitive advantage.
While the proposed model readily applies to rapidly changing environments, the results suggest
that the proposed resource reconfigurability is a key success factor, even in less rapidly changing
situations. This is explained by the fact that effectively reconfiguring resources can create superior
services and earn higher rents (Penrose, 1959), even if adequate configurations of functional
competencies may exist. In other words, even if stable environments, there are potentially valuable
opportunities for yet improved resource reconfigurations that may result in even higher performance.
Therefore, the proposed model may be viewed as a generalizable representation of how dynamic
capabilities result in competitive advantages, irrespective of the degree of environmental turbulence.
This study also extends the dynamic capabilities view to an inter-organizational level of analysis
by specifying the NPD work unit (both intra- and inter-organizational) as the unit of analysis. This

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suggests that inter-organizational relationships can also develop their own dynamic processes to guide
their evolution and transformation over time. While the literature focused on firm-centric dynamic
capabilities (Teece et al., 1997), this study makes a modest argument that inter-organizational
relationships can also reconfigure their resources and transform themselves in response to changing
environments. This finding has implications for the viability of long-term inter-firm partnerships. This
study thus contributes to the relational view (Dyer & Singh, 1998) in the sense that dynamic capabilities
extend beyond traditional firm boundaries.
This study examines strategic process level phenomena, such as the ability o f NPD work units to
build a competitive advantage. While strategy has been viewed as a top management decision-making,
this study calls for examining the strategic implications of group level phenomena, such as effectively
and efficiently managing knowledge resources. After all, Galbraith (1977) argued that perhaps the only
source of sustainable competitive advantage is efficient and effective resource management.
Finally, this study aims to describe the role of IT-enabled dynamic capabilities in a NPD context,
a strategic, yet under-researched area in the IS literature (Nambisan, 2003). It aims to entice future
research on understanding the role of IT and its potential outcomes in NPD. Whereas NPD processes are
becoming heavily supported by NPD-specific IT tools, the IS literature has done very little to inform
theory and practice as to the potential benefits from effectively using IT in NPD processes.

4.2 Empirical Contribution


The extant literature on dynamic capabilities has focused primarily on purely theoretical or
qualitative, case-study methodology. To the best of my knowledge, a comprehensive framework that
conceptualizes, operationalizes, and measures dynamic capabilities has not yet been developed, nor has
been empirically examined. The measurement of resource reconfigurability construct and its underlying
dimensions in the NPD context is perhaps the first attempt to empirically measure dynamic capabilities.
This approach can be used as a blueprint for measuring dynamic capabilities in other contexts. Following
Nambisan (2003), this study also operationalizes and measures a specific set o f IT competencies
specifically for a NPD context, thus providing empirical support to the IT artifact in an NPD context.

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4.3 Managerial Contribution


From a managerial perspective, this study aims to describe specific and identifiable factors that
affect success and performance outcomes in NPD, including interorganizational NPD processes. Since
this study aims to prescribe variables that can be readily influenced by managerial practices, the findings
of this study could provide useful recommendations for building a competitive advantage. The proposed
model that delineates the role of IT toward a competitive advantage provides a useful guide to managerial
thinking in terms of where to focus their attention. More important, it aims to prescribe how IT
functionality can be effectively utilized to support dynamic processes, particularly in an NPD context.
This study suggests that there is a need for a fundamental change in managerial thinking about the
enabling role of IT, not simply on operational processes, but on transformation processes and strategic
flexibility (Henderson & Venkatraman, 1993).

5. Dissertation Overview
This dissertation study is divided into six chapters. The second chapter describes the conceptual
underpinnings of resource reconfigurability and its underlying dimensions. The third chapter describes
the conceptual model and proposes a set of testable hypotheses that link resource reconfigurability with
competitive advantage and IT competence, moderated by environmental turbulence. The fourth chapter
describes the research methodology of two empirical studies, measure operationalization, and pilot
studies. The fifth chapter shows the results of the two empirical studies and tests the research hypotheses.
The last chapter discusses the studys findings and insights, its implications for theory and practice, and
its limitations and suggestions for future research.

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CHAPTER 2: RESOURCE RECONFIGURABILITY


1. Overview of Resource Reconfigurability
Dynamic capabilities characterize the ability to address changing environments by reconfiguring
existing internal and external resources into new functional competencies (Teece et al., 1997). This study
draws upon the Information Systems (IS), strategic management, and NPD literatures to propose the
construct of resource reconfigurability, which captures the core principle of dynamic capabilities.
Resource reconfigurability is a multi-dimensional set of dynamic capabilities that is proposed to influence
competitive advantage. The underlying dimensions of resource reconfigurability are shown in Figure 1.

Figure 1. The N ature of R eso u rce R econfigurability

Competitive
Advantage

Resource
Reconfigurability

Coordination
Competence

Absorptive
Capacity

Collective
Mind

Market
Orientation

DYNAM IC CAPABILITIES

The conceptualization of resource reconfigurability primarily draws upon the dynamic


capabilities view (Teece & Pisano, 1994; Teece et al., 1997), and it also informed by the resource-based
view (Penrose, 1959; Rumelt, 1984), the knowledge-base view (Grant, 1996b; Kogut & Zander, 1992;
Leonard-Barton, 1992; Nelson & Winter, 1982). These views offer useful insights regarding the nature of
dynamic capabilities (Kale, Dyer, & Singh, 2002). The application, operationalization, and test of the
resource reconfigurability construct takes place in a new product development (NPD) context. Finally,
resource reconfigurability is proposed to apply both to intra- and inter-organizational NPD work units,
drawing upon the relational view (Dyer & Singh, 1998).

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2. Literature Review
The basic theories reviewed in this preparatory section are (1) the resource-based view, (2) the
knowledge-based view, and (3) the dynamic capabilities view.

2.1 The Resource-Based View


Organizational resources and capabilities have received great interest multiple disciplines, such
as the strategic management (Grant, 1991; Madhok & Tallman, 1998; Makadok, 2001; Priem & Butler,
2001), IS (Bharadwaj, 2000; Kettinger, Grover, Suha, & Segars, 1994; Mata et al., 1995; Powell & DentMicallef, 1997), and marketing literatures (Day, 1994; Jap, 2001; Vorhies & Harker, 2000). The resourcebased view posits firm-specific resources as the determinants of competitive advantage (Penrose, 1959;
Rumelt, 1984). Capabilities and competencies are complex bundles of resources (Amit & Schoemaker,
1993; Grant, 1996a) that are deeply embedded in organizational processes to help undertake business
activities (Day, 1994; Prahalad & Hamel, 1990; Zollo, 1998). While both capabilities and competencies
are essentially complex bundles of resources, I reserve the term capabilities for dynamic processes, and
the term competencies for functional or operational activities.
According to the resource-based view, organizations must accumulate synergistic combinations
of resources to produce competencies that are valuable, scarce, heterogeneous, imperfectly mobile, and
inimitable in order to build a competitive advantage (Barney, 1991; Lippman & Rumelt, 1982; Peteraf,
1993). Ample evidence links competencies to competitive advantage (Kale & Singh, 1999; Kusunoki,
Nonaka, & Nagata, 1998; Madhok & Tallman, 1998; Moorman & Slotegraaf, 1999).
It is important to clearly distinguish between resources and competencies. Competencies, routed
in organizational processes (Prahalad & Hamel, 1990), generally refer to a firms capacity to undertake
business activities by bringing together bundles of resources (Day, 1994; Grant, 1995; McGrath, 2001;
Winter, 2000). Competencies also differ from resources as they cannot be easily identified, described, or
traded (Hamel & Prahalad, 1991). In fact, Day (1994) argues that competencies and capabilities are so
deeply embedded in organizational processes that even the management finds it difficult to identify,
describe, and apply them to other contexts. Miller and Shamsie (1996) distinguish between resources and

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capabilities as discrete versus systemic resources; Black and Boal (1994) refer to resources and
capabilities as traits and configurations, respectively.

2.2 The Knowledge-based view


The notion of the firm as a bundle of knowledge resources has recently attracted considerable
attention. Following the resource-based view, knowledge has been widely touted as a primary strategic
resource for organizations (Grant, 1996a; Grant & Baden-Fuller, 1995; Kogut & Zander, 1992). The
knowledge-based view argues that the organizations primary function (and reason for existence) is to
leverage knowledge into productive outcomes (Kogut & Zander, 1996; Nahapiet & Ghoshal, 1998;
Nonaka, 1994; Zander & Kogut, 1995a). The basic idea behind the knowledge-based view is that
knowledge resources, skills, and expertise are the basis for competitive advantage. The evolutionary
economics perspective (Nelson & Winter, 1982) and the knowledge-based theory (Grant, 1996b) have
also stressed the importance of knowledge resources as the basis for differential performance. Many
authors even claimed that knowledge could become the primary source of sustainable competitive
advantage in todays knowledge-intensive environments (Glazer, 1999; Grover & Davenport, 2001).
In general, the knowledge-based view understands resources and capabilities as multi-layered
knowledge sets (Leonard-Barton, 1992). Grant (1995) argues that there is a hierarchy of organizational
capabilities from local knowledge resources to functional and cross-functional capabilities. Kusunoki et
al. (1998) view knowledge resources as local capabilities or distinctive knowledge units, described as
human resources, patents, and know-how. Functional competencies are generated through an ongoing
process of absorbing information, converting it into knowledge, and utilizing knowledge to effectively
undertake functional activities. According to Alavi (2000), such knowledge is created when individuals
work together in tightly-knit groups, known as communities of practice (Brown & Duguid, 1998).
Increased representation of individuals and functions creates a diversity of knowledge resources, which
can create enormous value if properly managed (Blankenburg Holm, Eriksson, & Johnson, 1999; Helper
& MacDuffie, 2001; Moss-Kanter, 1994; Zajac & Olsen, 1993). A fundamental activity of cross

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functional groups, such as NPD work units is to integrate functional knowledge into collective knowledge
capabilities of greater value (Okhuysen & Eisenhardt, 2002).

2.2.1 What is Knowledge?


Knowledge is the stock of intellectual assets accumulated through experience, learning, and
ongoing practices (Sambamurthy, 2000). Knowledge broadly encompasses facts, data, symbols, files,
documents, discussions, workflows, tasks, reports, and whiteboard sessions, human expertise, and
scientific understanding (Becerra-Femandez & Sabherwal, 2001).
In order to fully understand what is knowledge, it is important to first distinguish between
knowledge and information by proposing two distinct categories - (a) information or explicit, codifiable
knowledge and (b) know-how or tacit, sticky knowledge (Alavi & Leidner, 2001; Grant, 1996a; Kogut &
Zander, 1992; Nonaka, 1991). Information or codifiable knowledge can be easily exchanged, shared,
stored, and retrieved without much loss. On the other hand, knowledge is the information that has been
processed in the minds o f individuals through deliberation, learning, and thought (Alavi, 2000). Thus,
tacit knowledge and know-how are complex, sticky, and difficult to codify, transfer, use, and imitate
(Nelson & Winter, 1982). From a conceptual standpoint, compared to codifiable knowledge, tacit
knowledge is more likely to result in competitive advantage.
Despite this distinction, it is important to clarify that these two categories are not dichotomous,
but they are mutually-dependent and reinforcing facets of knowledge (Polanyi, 1975). As Tsoukas (1996)
suggested, tacit and explicit knowledge are inseparable and mutually constituted. Nonaka and Takeuchi
(1995) further proposed that knowledge is created through interactions among different combinations of
tacit and explicit knowledge.

2.3 Dynamic Capabilities


Rapidly changing environments force organizations to regularly change their mix of resources
(Penrose, 1959) since they require ongoing modification to adapt to new environments (Madhok &
Tallman, 1998). Dynamic capabilities are the strategic processes by which organizations combine,

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integrate, expand, and reconfigure their existing resources to address rapidly changing environments
(Teece & Pisano, 1994; Teece et al., 1997). Broadly described, dynamic capabilities are the processes by
which managers manipulate resources into new productive competencies (Galunic & Eisenhardt, 2001).

2.3.1 Resource Picking Vs Dynamic Capabilities


There are at least two distinct mechanisms by which firms build a strategic advantage - (a)
resource picking and (b) competence building (Makadok, 2001). First, based upon the resource-based
view, resource picking suggests that organizations can select and acquire resources that will gain a
greater value than expected by the market, or when used in combination with other complementary
resources (Barney, 1991). On the other hand, competence building refers to the ability to integrate, build,
and reconfigure existing resources to build new functional competencies in conditions o f rapid change
(Grant, 1995; Teece et al., 1997). Competence building or dynamic capability is a distinct process that
describes how to deploy or exploit existing resources, as opposed to selecting or combining
resources (Hamel & Prahalad, 1994). In Schumpetarian theory (Schumpeter, 1934, 1942) where
innovation is the source of value creation, there is emphasis on the creation of novel combination of
resources through creative destruction of existing resources. Henderson and Clark (1990) also argue
that innovation is linking together existing resources in new ways. In e-business, value creation often
results from new innovative configurations of knowledge resources (Amit & Zott, 2001).
Dynamic capabilities have emerged in response to the inadequacy of the resource-based view to
account for how and why certain firms have a competitive advantage in rapidly changing environments
(without picking new resources). Nonetheless, the dynamic capabilities view is still consistent with the
resource-based view. It actually extends the resource-based view to address rapidly changing
environments by reconfiguring existing resources. In fact, the resource-based view admits that existing
resources enable value-creating strategies. Dynamic capabilities enhance resource deployment through
collecting, building, and transforming existing resources to create new competencies (Helfat, 1997). In
sum, resource picking defines whether knowledge resources can be obtained and integrated; competence
building defines how knowledge resources are leveraged to address new opportunities.

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2.3.2 Dynamic Capabilities Vs Functional Competencies


It is also important to differentiate between dynamic capabilities and functional competencies.
Functional competencies or proficiencies are those processes that perform basic operational activities,
such as logistics, marketing campaigns, and manufacturing processes (Amit & Schoemaker, 1993;
Madhok & Tallman, 1998; Prahalad & Hamel, 1990). Functional competencies are defined as purposive
combinations of resources that enable accomplishing a given task.
Dynamic capabilities, on the other hand, is the creative capacity for improvement and renewal of
functional competencies in response to environmental changes (Collis, 1994). Dynamic capabilities are
essentially the subset of organizational processes that are directed toward enabling change and evolution
of functional competencies. King and Tucci (2002) view dynamic capabilities as transformational
processes (p. 172), also distinguishing them from static or functional competencies. This is consistent
with Henderson and Cockbum (1994) who discriminate between component competence (managing
day-to-day operations) and architectural competence (building new competencies).

2.3.3 Related Work on Dynamic Capabilities


The spirit of dynamic capabilities has been described with different terms. They have been
termed combinative capabilities (Kogut & Zander, 1992), architectural competence (Henderson &
Cockbum, 1994), integrative capabilities (Lawrence & Lorsch, 1967), organizational architecture
(Nelson & Winter, 1982), invisible assets (Itami, 1987), or broadly capabilities (Amit & Schoemaker,
1993). Van den Bosch, Volberda, and De Boer (1999) and Kogut and Zander (1992) used the term
combinative capabilities to describe the processes by which firms synthesize and extend knowledge
resources to generate new applications from those resources. Grant (1996) used the term integration
while Henderson and Clark (1990) used the term configuration. Dynamic capabilities have also been
described as key capabilities (Grant, 1996b), or meta-capabilities (Henderson & Cockbum, 1994). A
related term, co evolution describes how competencies are shaped to match evolving environments
(Helfat & Raubitschek, 2000).

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Dynamic capabilities are specific set of processes within the broad domain of strategic flexibility
(Volberda, 1996). While strategic flexibility describes a variety of managerial capabilities to increase the
organizations controllability (p. 36), dynamic capabilities are specific to resource reconfiguration.

2.3.4 Nature of Dynamic Capabilities


Changing conditions drive organizations to reinvent their existing competencies and develop
new ones (Fowler, King, Marsh, & Victor, 2000; Marsh & Stock, 2002). Dynamic capabilities are
essential for shifting and altering existing resources to accommodate changing environmental conditions.
Following Teece et al. (1997) and Galunic and Eisenhardt (2001), dynamic capabilities are defined as the
ability to integrate, build, and reconfigure existing resources to renew competencies that adapt to rapidly
changing environments. In turn, these new competencies will become the resource pool on which yet
newer functional competencies will develop to help match new environmental changes (Iansiti & Clark,
1994; Kogut & Zander, 1992). In brief, dynamic capabilities recurrently bring forward existing
knowledge resources to create new configurations of functional competencies.
Perhaps the most interesting notion of dynamic capabilities is the term dynamic, which refers
to the creative capacity to renew functional competencies. Dynamic capabilities design and construct
new, more valuable competencies to enhance the productivity of existing resources (Makadok, 2001).
Dynamic capabilities are essentially the processes by which managers alter their resource base by
recombining resources. In other words, dynamic capabilities are the drivers behind the creation,
evolution, and recombination of existing resources into new sources of value.
Dynamic capabilities exhibit common features that are associated with effective processes, or
simply best practices in managing change (Eisenhardt & Martin, 2000). While dynamic capabilities may
exhibit significant commonalities across firms, they are still idiosyncratic, specific, and distinct in terms
of how they operate. This is because the development of new competencies essentially starts from
different starting points (Eisenhardt & Martin, 2000). This inhomogeneity is one of the reasons dynamic
capabilities can become the basis of competitive advantage. Finally, value potential of dynamic
capabilities is also a matter of degree (Winter, 2000).

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2.3.5 Dynamic Capabilities and Knowledge-Based View


While dynamic capabilities can draw upon and reconfigure virtually any organizational resource,
it is important to stress the role of knowledge as a key resource (Glazer, 1991). Knowledge is crucial in
todays organizations that operate based on knowledge-intensive processes. Competition has become
increasingly knowledge-based, and organizations strive to develop knowledge-intensive competencies
faster than the competition (Lane & Lubatkin, 1998). In fact, knowledge is often regarded as the only
source of sustainable competitive advantage (Alavi, 2000). Nonetheless, even if the necessary knowledge,
expertise, and skills are present, the true ability is to access and integrate the vast range o f knowledge
resources to continuously support productive activity as the environment changes. The importance of
reconfiguring existing knowledge into new set of knowledge has been widely touted (De Boer et al.,
1999). In fact, integrating knowledge, skills, and expertise from multiple sources into valuable processes
is the cornerstone of dynamic capabilities (Eisenhardt & Martin, 2000).
Two critical issues arise from the knowledge-based view - knowledge utilization and
knowledge creation (Alavi, 2000). Dynamic capabilities address both issues by absorbing knowledge,
transforming it into superior knowledge representations, and utilizing it to effectively to drive
organizational processes. They first deal with collecting, coordinating, and integrating knowledge-based
resources to match market needs. Second, they also deal with the development, transformation, and
reconfiguration of existing knowledge. Dynamic capabilities describe how organizations create new
combinations of resources to create value, implying an iterative loop that allows exploitation of new
opportunities (Helfat & Raubitschek, 2000). Dynamic capabilities are essentially knowledge management
processes that deal with the coordination, assimilation, creation, and exploitation of knowledge. Moran
and Ghoshal (1996) also argue that exchanging and combining existing knowledge resources can create
new knowledge-based competencies. NPD examples are the creation of new products by knowledge
brokering from previous designs (Hargadon & Sutton, 1997). In sum, drawing from a knowledge-based
view perspective, knowledge is the key strategic resource that dynamic capabilities recurrently
reconfigure into new sets of knowledge-intensive competencies (D'Adderio, 2001).

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2.3.6 Path Dependent Nature of Dynamic Capabilities


At any given time, functional competencies partly reflect prior investments in resource
allocation. Dynamic capabilities emerge from path-dependent histories (Teece et al., 1997) since the role
of dynamic capabilities lies in integrating existing resources (Helfat & Raubitschek, 2000). Therefore, the
development of new competencies is constrained by past processes and previous experience (Zahra &
George, 2002a). After all, organizations tend to search for opportunities in areas where they have had past
successes, essentially constraining their knowledge search. In other words, where a firm can go is a
function of its current position (Schumpeter, 1934). Even if dynamic capabilities define the evolutionary
path of organizations (Nelson & Winter, 1982), they still follow a path dependent history since existing
resources are the basis for future ones (Kale et al., 2002).

3. Resource Reconfigurability
Because of their tacit and dispersed knowledge, dynamic capabilities are generally difficult to
describe (Day, 1994). Therefore, they have been predominantly studied ex-post, usually referring to them
as an empty box measure of improved performance (D'Adderio, 2001). They have also been referred to
as hidden or invisible processes, completely unstructured or organic abstract processes. In fact,
Andrews (1987) pointed out much of what is intuitive in this process is yet to be identified. (p. 46).
Therefore, there is an urgent need to overcome this lack of specificity and capture the black box of
dynamic capabilities. This study proposes a set of specific, identifiable, and empirically measurable set of
capabilities that together capture the nature of dynamic capabilities. Resource reconfigurability' is thus
formally proposed as a multi-dimensional construct to capture the core principles of dynamic capabilities.

3.1 Resource Reconfigurability Defined


Resource reconfigurability is defined as the ability to recombine existing internal and external
resources in innovative ways to renew functional competencies that match environmental contingencies.
First, the term resource reconfiguration or recombination of resources in innovative ways is most

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consistent with Galunic and Eisenhardt's (2001) notion of architectural innovation. It also corresponds
to creating new architectural knowledge (De Boer et al., 1999), described as the combination of
different types of knowledge into new configurations for generating effective product market
combinations (p. 380). Second, to match environmental contingencies denotes the ability to quickly
match the renewed functional competencies with changing environmental conditions. Finally, while
mergers and acquisitions have also been proposed as means to reconfigure external resources (Karim &
Mitchell, 2000), the proposed resource reconfigurability focuses solely on existing internal and external
resources. In sum, resource reconfigurability is essentially a dynamic adaptation or transformation
process that involves the advancement of existing resources to align with environmental contingencies.
While resource reconfigurability is proposed at a general level to reflect the ability to
reconfigure virtually all types of resources, it is important to mention that different types of resources
may have different degrees of malleability or amenability to change. Leonard-Barton (1992) argues that
as resources become less tangible, less visible, and less explicitly codified, they will be easier to
reconfigure and change (p. 121). For example, intangible knowledge resources may have the highest
degree of reconfigurability or malleability, and they could easily used to build new functional
competencies. On the contrary, tangible resources, such as manufacturing plants and equipment may
exhibit great difficulty in being reconfigured.
Finally, resource reconfigurability is a collective capability and does not reside in any single
individual (Brown & Eisenhardt, 1997). Even if some individuals may influence this dynamic capability
(Verona, 1999), it is by definition collective (Orlikowski, 2002). This is consistent with Weick and
Roberts (1993) who view the integration of disparate inputs as the magical transformation that creates
higher-order collective competencies that no individual can single-handedly produce.

3.1.1 Resource Reconfigurability and Related Concepts


Resource reconfigurability relates to the concept of organizational IQ (Mendelson, 2000;
Mendelson & Pillai, 1998), which was shown to influence performance outcomes, especially in fast
moving environments. Whereas organizational IQ describes the firms information processing capacity to

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handle information, resource reconfigurability captures the capacity to transform existing resources into
new and improved competencies to achieve competitive advantage in response to changing environments.
Therefore, resource reconfigurability is distinct construct that focuses on a specific capability, not a
general capacity to process information.
Resource reconfigurability also relates to the concept of improvement in competencies
proposed by Venkatraman and Ramanujam (1987) and expanded by Segars and Grover (1998). These
authors describe this concept as the ability to improve functional competencies over time in order to
support organizational objectives. According to the authors, this includes planning and learning processes
that result in improved competencies, such as anticipating relevant events and issues within the
competitive environment, and adapting to unexpected changes.
Resource reconfigurability finally relates to the concept of co-evolution where webs of
collaborations from different areas are recombined to generate new synergistic combinations (Eisenhardt
& Galunic, 2000). "Patching is a related dynamic routine that aims to realign the match-up of functional
competencies to changing market opportunities (Eisenhardt & Brown, 1999). Finally, reconfigurability is
similar to related diversification as knowledge is acquired, augmented, and reconfigured to match
market needs (Helfat & Raubitschek, 2000).

3.2 Theoretical Domain of Resource Reconfigurability


Higher-level capabilities do not reflect any certain domain of knowledge or skill, but they
reflect the ability to leam new domains (Danneels, 2000) (p. 1112). Dynamic capabilities are the multi
dimensional, higher-order processes that undertake organizational transformation (Collis, 1994; Kogut &
Zander, 1996; Pisano, 1996; Sambamurthy et al., 2003; Segars & Dean, 2000) (Teece et al., 1997;
Wheeler, 2002). Drawing upon this logic, resource reconfigurability is herein viewed as a complex,
higher-order combination of simpler, or lower-order routines that are foundational to the overall dynamic
capability. This view is consistent with Mendelson (2000) and Wheeler (2002) who describe a set of
interrelated capabilities into an aggregate set. Hence, a multi-dimensional model with multiple indicators
is likely to better capture the essence of resource reconfigurability.

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Following Churchill (1979), Segars and Grover (1998), and Segars and Dean (2000), I
undertook an extensive literature review in conjunction with personal interviews to provide a sound
foundation for the theoretical domain of the resource reconfigurability construct. These reviews aimed at
identifying inter-related, lower-order factors with a transformational potential that contribute to the ability
to effectively reconfigure resources. My goal was to draw upon existing constructs from the literature, as
opposed to coming up with brand new terms, even if some reconceptualization was required to better
capture their adaptation potential and relationship to resource reconfigurability.
This procedure yielded a set of four factors, termed (a) coordination competence, (b) absorptive
capacity, (c) collective mind, and (d) market orientation. It is important to clarify that the proposed
variables may not exhaust the domain of resource reconfigurability; yet, they are merely posited as a
representative set of factors. Given the complexity of the proposed construct of resource reconfigurability
and its four underlying dimensions, there is a high degree of abstraction because of the tacitness of its
knowledge component. Following Okhuysen and Eisenhardt (2002), the usefulness of the dynamic
capabilities view relies on sharply defined constructs to describe their boundaries and relationships and
yield precise measurement. Therefore, it is important to be specific on such knowledge-related concepts
and avoid relying on loose definitions. The following section attempts to clearly distinguish, define, and
place all these factors under a magnifying glass to describe their nature, inter-relationships, and
relationship to resource reconfigurability.

3.2.1 Coordination Competence


Organizations often do not know what they know or have (Day, 1994), or where their knowledge
resources reside since they may exist across functional, departmental, or geographical levels. For
example, Hinds and Mortensen (2002) report that the greatest coordination problem in R&D teams was
differences in knowledge held by team members and incomplete or inaccurate knowledge about the
teams activities. These common problems result in resources not being fully utilized (Davis, 1984).
However, for these resources to become useful, they must be effectively coordinated. Knowledge may
reside across functional areas; hence, it must be collected to become useful. In knowledge-intensive

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environments, coordinating knowledge and expertise becomes prominent (Faraj & Sproull, 2000). In fact,
coordination has a prominent role both in the knowledge-based view (Levina, 1999) and also in the
dynamic capabilities perspective (Teece et al., 1997).

3.2.1.1 What is Coordination?


Coordination has been described as means for integrating knowledge (Dyer, 1997) by linking
different groups to accomplish a collective set of tasks (Van de Ven, Delbecq, & Koenig, 1976).
Mintzberg (1979) describes coordination as the management of dispersed knowledge resources. The
fundamental role of coordination has been widely documented (Adler, 1995; D'Adderio, 2001; Hoegl &
Gemuenden, 2001; Nidumolu, 1996; Sobek II, Liker, & Ward, 1998).
Following March and Simon (1958), there are two types of coordination: (a) by programming,
and (b) by feedback. These two types of coordination correspond respectively to the centralized and
decentralized control of interdependence (Sikora & Shaw, 1998), and organic and mechanistic
coordination strategies (Andres & Zmud, 2002). Coordination by programming typically involves
planning and routines, such as rules, codes, procedures, directives, and group routines (Grant, 1996a,
1996b; Nelson & Winter, 1982). Coordination by feedback requires intense information flow, rich
communication and collaboration, group decision making, socialization, and mutual adjustments (De
Boer et al., 1999; Grant, 1996b; Thompson, 1967).
Coordination mechanisms also depend on the type (e.g., tacit or explicit) of knowledge that must
be coordinated. Explicit knowledge can be coordinated by programming (Argyres, 1999); tacit
knowledge requires feedback (Sanchez & Mahoney, 1996). It is beyond the scope of this study to test
which coordination type is superior. In addition, while the importance of selecting proper coordination
mechanisms is recognized (Malone et al., 1999), Clark and Fujimoto (1991) indicated that there is no
single formula for achieving effective coordination. Coordination patterns are dynamic based on the
firms needs (Grant, 1991). It is thus beyond the purpose of this study to identify the most appropriate
coordination mechanism, which has been described elsewhere (Malone et al., 1999).

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Brown and Eisenhardt (1997) argue that neither coordination by programming or by feedback is
superior since successful groups balance both. This is consistent with Okhuysen and Eisenhardt (2002)
who argue that too little structure makes coordination difficult, while too much structure makes it hard to
move (p. 383). In this study, coordination refers to the notion of workflow coordination (Tan & Elarker,
1999). Finally, it is important to differentiate between contractual and workflow (procedural)
coordination (Sobrero & Roberts, 2001). Contractual coordination refers to the exchange of rights among
parties, while workflow coordination deals with the structure of information and knowledge flows. This
study focuses on workflow or procedural coordination.
Coordination theory provides a theoretical basis for studying coordination (Malone & Crowston,
1994). According to the theory, coordination routines include gathering and processing information,
linking requirements with tasks, coordinating tasks, allocating resources, and managing dependencies
(Crowston, 1997; Malone & Crowston, 1994). The theory suggests that dependencies must first be
identified, and then alternative coordination mechanisms should be chosen to effectively manage them.
This is consistent with Faraj and Sproull (2000) who argue that effective coordination assumes
recognizing the need for knowledge and bringing it to bear. Following Crowston and Kammerer (1998),
there are three types o f dependencies: (1) task-task dependencies (usability and transfer constraints), (2)
task-resource dependencies, and (3) shared resource dependencies.

3.2.1.2 Dimensions of Coordination Competence


Drawing upon coordination theory (Malone & Crowston, 1994), coordination competence is
described as the capacity to effectively and efficiently manage dependencies. Following Crowston and
Kammerer (1998), I propose three dimensions of coordination competence - (a) task synchronization (the
ability to coordinate task-task dependencies), (b) resource allocation (the ability to coordinate resourceresource dependencies), and (c) task assignment (the ability to coordinate task-resource dependencies).
First, task synchronization is the ability to specify and execute roles with minimal redundancy, referring
to the extent to which group members function according to the groups requirements (Mohr & Spekman,
1994). Second, resource allocation deals with achieving the best allocation of resources, such as dealing

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with accumulating and assigning scarce resources (Grant, 1995). Finally, task assignment is the ability to
appoint suitable tasks to the right group members. These three abilities are combinative in nature and
build upon each other to produce an overall competence. Coordination competence is defined as the
ability to effectively synchronize tasks, allocate knowledge resources, and assign tasks.

3.2.13 Coordination Competence as a Dynamic Capability


The conceptualization of coordination competence as a dynamic capability is suggested by
several researchers. Day (1994) describes coordination as the ability to harmonize an array of skills and
knowledge. The ability to coordinate knowledge has also been viewed as a key capability by De Boer et
al. (1999), and it has been referred to as the ability to combine skills and knowledge (Kogut & Zander,
1992; Zollo & Winter, 2002). In their seminal work on dynamic capabilities, Teece et al. (1997) argue
that the notion that competence/capability is embedded in distinct ways of coordinating and combining
helps to explain how and why seemingly minor technological changes can have devastating impacts on
incumbent firms abilities to compete in a market (p. 519).

3.2.2 Absorptive Capacity


Absorptive capacity is the ability to accumulate, integrate, and transform knowledge resources
(Grant, 1995; Kusunoki et al., 1998). The acquisition, accumulation, and expansion of knowledge are
important elements of virtually all organizations (Hamel, 1991). Knowledge-creation routines build new
thinking and create effective strategy and performance (Eisenhardt & Martin, 2000). According to
Gartner (www.gartner.com). the ability to capture and share knowledge, to reinvent, reuse, and innovate
with this knowledge is a key determinant of value.

3.2.2.1 W h at is A bsorptive C apacity?

Absorptive capacity has been described as the ability to achieve organizational learning. In their
seminal work, Cohen and Levinthal (1990) described absorptive capacity as the firms ability to identify,
value, assimilate, and exploit knowledge from the environment. Absorptive capacity determines the
capacity to assess, appropriate, and integrate explicit and tacit knowledge (Kumar & Nti, 1998). Research

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has also viewed absorptive capacity as the ability to use and modify both external (Koza & Lewin, 1998)
and internal knowledge (Cummings, 2001). In fact, both internal and external knowledge has been related
to group performance (Ancona & Caldwell, 1992; Eisenhardt & Tabrizi, 1995; Granovetter, 1973; Katz &
Irishman, 1979; Tushman & Katz, 1980).
Absorptive capacity relates to the notion of perspective making and perspective taking in
communities of knowing (Boland & Tenkashi, 1995). The authors argue that communities of knowing
with functional expertise engage in both perspective taking (group members exchanging and integrating
their individual knowledge with others), and also perspective making (the group increasing its own
knowledge domain into useful outcomes).

3.2.2.2 Dimensions of Absorptive Capacity


According to Zahra and George (2002a), there are four dimensions of absorptive capacity - (a)
identification, (b) assimilation, (c) transformation, and (d) exploitation.1First, acquisition refers to the
ability to identify and acquire knowledge, either externally generated or internally drawn. Knowledge
acquisition is critical to advance knowledge to solve new problems, and relates to Mendelson's (2000)
knowledge transparency and knowledge diffusion. Second, assimilation refers to the ability to analyze,
process, interpret, and understand knowledge obtained. Codification and interpretation are key elements
of knowledge assimilation, which is the process by which information is sorted, categorized, and given
meaning (Daft & Weick, 1984; Moorman & Miner, 1998b). Third, transformation denotes the ability to
develop and refine the routines that facilitate combining existing with the newly acquired and assimilated
knowledge (Zahra & George, 2002a). Finally, exploitation refers to the ability to refine, extend, and
leverage existing knowledge by incorporating acquired and transformed knowledge into new
applications. Following Cohen and Levinthal (1990) and Zahra and George (2002a), I define absorptive
capacity as the ability to effectively acquire, assimilate, transform, and exploit knowledge.

1 Zahra and George (2002) also distinguish between potential and realized absorptive capacity, where potential refers
to the acquisition and assimilation of knowledge, and realized refers to knowledge transformation and exploitation.

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3.2.2.3 Absorptive Capacity as a Dynamic Capability

Absorptive capacity does not reside in any single individual, but depends on the links across
individual capabilities. As with most organizational capabilities, absorptive capacity is group specific and
cannot be purchased and easily integrated into the firm (Cohen & Levinthal, 1990). Zahra and George
(2002) reconceptualized absorptive capacity as a dynamic capability pertaining to knowledge creation
and utilization that enhances the collective ability to gain and sustain a competitive advantage.

3.2.3 Collective Mind


Weick and Roberts (1993) proposed the term collective mind to describe high-reliability teams
that heedfully interrelate to integrate each group members individual information, knowledge, and
expertise into a collective outcome. Collective mind refers to patterns of heedful interactions that support
the aggregation and utilization of knowledge. It is essentially a transactive memory system where
connected individuals hold their collective knowledge. The importance of attaining a collective mind has
dramatically increased given the emergence of diverse cross-functional teams that need to connect their
thought worlds to successfully work together (Dougherty, 1992). The notion of collective mind has
thus recently received increased attention (Becerra-Femandez & Sabherwal, 2001; Crowston &
Kammerer, 1998; Faraj & Sproull, 2000).

3.2.3.1 W hat is Collective Mind?

Collective mind describes the quality of collaboration among entities toward achieving a unity of
effort (Lawrence & Lorsch, 1967), by bringing together dispersed knowledge among individuals.
Collective mind has been described as each individual group members disposition to act in ways that
further collective goals through heedful behaviors. Collective mind as a teams ability to understand how
the individual skills, interdependent know-how, and expertise inter-relate to respond as a social cognitive
system to meet situational demands (Faraj & Sproull, 2000; Senge, 1990; Weick & Roberts, 1993),
especially when the complexity of a task is beyond any individuals processing capabilities.
A collective mind is a social system of joint actions; Tsoukas (1996) describes the patterns of
joint actions as socially embedded, which emerge over time through repeated interactions. Collective

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mind thus relates to the concept of a teams mental model, which is a socially shared cognition that
represents a broad mental configuration o f a given phenomenon, or a common language (Bacharach,
1989) (p, 500). Shared mental models have been touted as a requirement for converting tacit knowledge
into embodied knowledge (Madhaven & Grover, 1998). The articulation and reflection of knowledge are
facilitated by the availability o f a common language and interpretive schema (Daft & Weick, 1984).

3.2.3.2 Dimensions of Collective Mind


Weick and Roberts (1993) identify three behaviors that facilitate a collective mind - (a)
contribution, (b) representation, and (c) interrelation.2 First, contribution refers to each group members
supply of individual knowledge to the collective outcome (Leonard & Sensiper, 1998). Second,
representation captures the extent to which each individual builds internal models of the group
(Dougherty, 1992). The notion of representation parallels Leonard and Sensiper's emphasis on enriching
individual perspectives with the perspectives of others using brainstorming, providing access to
functional knowledge, and opinion sharing. Individuals interpret and synthesize actions and form a
cognitive model o f the group that helps them visualize how they fit in, how others will act, and how their
actions with affect others (Crowston & Kammerer, 1998), Finally, interrelation (or subordination) occurs
when individuals put their groups goals ahead of their individual ones, linking their actions in a heedful
manner. Interrelation parallels the notion of convergence (Leonard & Sensiper, 1998), which deals with
creating a common vision. Interrelation also relates to socialization, which is the process o f sharing
experiences and creating shared mental models (Nonaka & Takeuchi, 1995). Interrelation can be
performed at various degrees of heedfulness, depending on whether tasks and decisions are performed
conscientiously. Summarizing these dimensions, collective mind is defined as the ability to effectively
contribute to the group outcome, represent the collective input, and rely on the group system.

2 (Weick and Roberts 1993) also proposed three underlying processes that help build a collective mind: socialization,
conversation, and recapitulation. Socialization refers to how group members fit into the collective process, how they
interact with one another, and how things are performed within the team. Conversation or information sharing refers
to informal and formal communications, meetings, social events, and electronic mail or conferencing. Recapitulation
refers to the sharing and reanalysis of important events that creates a sense of history.

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3.2.3.3 Collective Mind as a Dynamic Capability


The collective mind is capable of intelligent action when the individual components
(contribution, representation, interrelation) are heedfully performed, as these three dimensions are
complementary and reinforce one another (Crowston & Kammerer, 1998). For example, unless there is a
good representation of the collective requirements, individual contributions might be inappropriate or
redundant. Similarly, representation requires precise knowledge of individual contributions. Finally,
subordination requires a thoughtful and faithful representation of the groups goals. Drawing upon Weick
and Roberts (1993), these three dimensions are proposed to be combinative in nature and build upon each
other to produce a dynamic capability. Collective mind is herein viewed as a dynamic capability by
allowing groups to collectively shape their knowledge resources through heedful interactions into a new
innovative set of into functional competencies.

3.2.4 Market Orientation


Organizations have imperfect knowledge of their competitive markets, especially in highvelocity environments where their markets constantly change (Galunic & Eisenhardt, 2001). Hence,
organizations must act as entrepreneurs that are alert to new opportunities. Market orientation is the
ability to identify market imperfections, sense changes in customer demands, and exploit market
disruptions (Sambamurthy et al., 2003). Scanning and sensing the environment for new market
opportunities have long been a important attributes of successful organizations (Segars & Dean, 2000).

3.2.4.1 What is Market Orientation?


Market orientation (Day, 1994; Kohli & Jaworski, 1990; Narver & Slater, 1990) is founded on
the ability to understand customer needs and competitive dynamics. It includes getting access to
distribution channels (Stem, El-Ansary, & Coughlan, 1996), and finding, interpreting, and capitalizing on
information about current or potential customers and competitors (Huber, 1991; Sinkula, 1994a; Slater &
Narver, 1998). Market orientation capabilities include strategic marketing management (e.g., market
segmentation and product differentiation) (Hamel & Prahalad, 1991), marketing-mix policies (e.g.,
pricing, advertising, and distribution) (Urban & Hauser, 1993), and market sensing (e.g., sensing market

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changes and anticipating responses to marketing actions) (Day, 1994). Market orientation recognizes and
identifies new market spaces, determines their potential strategic importance, visualizes their evolution,
and matches them with emerging functional competencies.

3.2.4.2 Dimensions of Market Orientation


Market orientation composes of three activities: (a) generation of market intelligence related to
current or potential customers, (b) dissemination of market intelligence, and (c) responsiveness to market
intelligence (Jaworski & Kohli, 1993; Kohli & Jaworski, 1990). Particularly the responsiveness
component serves an important role, and it is composed of (i) market intelligence to develop plans and
(ii) response implementation for executing these plans. More detailed, first, generation o f market
intelligence' relates to opportunity recognition or opportunism, which is the ability to detect attractive
opportunities by sensing unexpected market developments (Quinn, 1980, 1986). Generating market
intelligence is a proactive capability that deals with analyzing events, information, and intelligence to
uncover trends with speed and innovation (D'Aveni, 1994; Goldman et al., 1995; Henderson & Clark,
1990; Henderson & Cockbum, 1994). It also deals with recognizing and exploiting opportunities that
competitors may have overlooked. Lastly, market intelligence relates to Mendelson's (2000) information
awareness that is extremely important in terms of capturing information and opportunities in the
environment. Second, dissemination o f market intelligence' refers to the ability to propagate the
knowledge generated about the market across organizational members. This dimension ensures that the
work unit can collectively prepare to respond to new market opportunities. Finally, responsiveness to
market intelligence' relates to the notion of agility (Sambamurthy et al., 2003), which reflects the ability
to initiate solutions, explore and utilize new opportunities, respond to environmental changes, and
execute innovations and novel competitive moves with speed, surprise, and disruption. In sum, market
orientation is defined as the ability to generate, disseminate, and be responsive to market intelligence.

3.2.4.3 Market Orientation as a Dynamic Capability


The dynamic capabilities approach emphasizes the need to effectively deploy resources by
identifying and pursuing new market opportunities and achieving timely responsiveness and flexible

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innovation (Stuart, 1998). Market orientation underlies the ability to recognize and dynamically respond
to environmental opportunities and threats, anticipate emerging rigidities, mobilize a collective readiness
to change, and avoid impediments to exploring new opportunities. The ability to foresee technological
change and adapt capabilities can create and sustain a competitive advantage (Cockbum, Henderson, &
Stem, 2000). Following Sambamurthy et al. (2003), market orientation can be viewed as a dynamic
capability that enables work units to sense the environment, prepare for launching competitive moves,
and seize new business opportunities and economic benefits.

3.3 Resource Reconfigurability: A Higher-Order Construct


Dynamic capabilities can be viewed as meta-routines or meta-capabilities (Collis, 1994),
which are used for shaping functional competencies (Adler, Goldoftas, & Levine, 1999). Resource
reconfigurability is proposed as a higher-order dynamic capability that is evidenced through high
effectiveness across the proposed four lower-order dynamic capabilities - coordination competence,
absorptive capacity, collective mind, and market orientation. This conceptualization suggests links
between the higher-order unitary construct with each of the underlying dimensions, plus potential
relationships among the lower-order factors, as shown in Figure 1. Rather than examining the
independent effects of the proposed four first-order capabilities, the proposed second-order construct of
resource reconfigurability is more likely to directly influence dependent variables, such as competitive
advantage, than any set of lower-order dimensions (which are thus expected to exhibit indirect effects).
Resource reconfigurability is likely to be most effective when all capabilities are cumulatively
exhibited, thus taking advantage of their complementarities (Mendelson, 2000; Milgrom, Qian, &
Roberts, 1991; Milgrom & Roberts, 1995; Moorman & Slotegraaf, 1999). A second-order structure is
proposed to capture these relations, explaining how the interrelationships among the first-order factors
constitute an integrative latent construct. Following Segars and Grover (1998), the development of
second-order structures is useful for capturing multiple facets of a multi-dimensional constmct that could
be subsumed with a unidimensional factor. Such structure provides insight into the nature of a
phenomenon and the inter-relationships among its underlying factors, thus portraying a more accurate

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description of a complex theoretical construct. A second-order factor model can also be viewed a
parsimonious explanation of the covariance among the first-order factors (Marsh & Hocevar, 1985).
Dynamic capabilities are combinations o f simpler capabilities or sequenced steps (Brown &
Eisenhardt, 1997). Using a sports analogy, coordination competence collect the moves, absorptive
capacity helps leam each others moves and perfect them, collective mind forms the game plan that
orchestrates the moves, and market orientation captures opportunities by gathering intelligence.
In sum, the proposed higher-order structure of resource reconfigurability with its underlying
dimensions is proposed as an interrelated system that helps work units collectively integrate, expand, and
reconfigure their existing resources to build new competencies. I then describe the relationship between
each of the first-order capabilities with resource reconfigurability, followed by a description of the
relationships among the lower-order capabilities. This discussion helps justify the proposed formative
higher-order structure of resource reconfigurability.

3.3.1 Coordination Competence and Resource Reconfigurability


Coordination competence has been described as the strategic insight to recognize the intrinsic
value of existing resources and exploit them by integrating knowledge, information, and skills (Collis &
Montgomery, 1995; Collis, 1994). Coordination competence describes the ability to combine existing
resources in novel ways to create new competencies (Amit & Schoemaker, 1993). Hence, coordination
competence can be thought o f as the foremost process toward assembling, integrating, and recombining
resources to create a refined set of new resource configurations. This perspective is consistent with the
dynamic capabilities view that stresses the importance of coordinating, harnessing, and integrating
diverse knowledge into superior new competencies (Grant, 1996b; Kogut & Zander, 1996; Spender &
Grant, 1996). According to the dynamic capabilities view (Teece et al., 1997), building effective resource
configurations assumes coordination and deployment of internal and external resources in a timely and
innovative fashion. In sum, the ability to effectively coordinate resources enables organizations to
conceive, choose, and implement new strategies (Henderson & Cockbum, 1994), such as the dynamic
capability to reconfigure resources (herein described as resource reconfigurability).

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3.3.2 Absorptive Capacity and Resource Reconfigurability


The ability to learn has widely touted as a critical component of competitiveness in dynamic
environments characterized by rapid developments (Hitt et al., 1998). Specifically, absorptive capacity
has long been touted as a critical component of innovative capabilities (Cohen & Levinthal, 1990).
Resource reconfigurability through the absorptive capacity dimension suggests (a) knowledge expansion
and (b) creation of new knowledge.
First, Zollo and Winter (2002) argue that knowledge accumulation, articulation, and codification
are important for the evolution of dynamic capabilities. Mutual learning is essential to facilitate better
understanding, receiving, and processing o f knowledge resources (Lyles & Salk, 1996; Madhok &
Tallman, 1998). For example, Zollo (1998) and Kale and Singh (1999) argue that competencies are
developed by incremental learning and fine-tuning of daily routines. This view is consistent with Wheeler
(2002) who argues that learning processes guide the evolution of dynamic capabilities in terms of
acquiring, reconfiguring, and integrating resources. Hence, absorptive capacity plays a key role in the
dynamic process of co-evolution of functional competencies (Lewin et al. 1999).
Second, absorptive capacity is important for innovation (Tsai, 2001), implying a creative
potential for reconfiguring resources. Absorptive capacity promotes organizational change by influencing
the evolution o f new functional competencies (Zahra & George, 2002a). Absorptive capacity is critical
since existing competencies erode over time, and an intensive exchange of knowledge can deploy new
competencies (Grant, 1996b; Zahra & George, 2002a). Learning and the acquisition of knowledge can
form the basis for an iterative process of changing existing resources and developing new competencies
(Hitt et al., 1998; Marsh & Stock, 2002). This is consistent with Prahalad and Hamel (1990) who argue
that the hallmark of competence development is learning. Pisano (1994) also argues that learning plays a
central role in developing new competencies by enhancing unique skills and resources. In sum, the
literature has concluded that the ability to leam is considered the source of building new knowledgebased competencies (Iansiti & Clark, 1994; Leonard-Barton, 1995; Ulrich & Lake, 1990), and absorptive
capacity should play an integral role on resource reconfigurability.

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3.3.3 Collective Mind and Resource Reconfigurability


Dynamic capabilities are patterns of collective activity through which organizations
systematically modify their existing resources in pursuit of alignment with the environment (Zollo &
Winter, 2002). Collective mind is a dynamic capability for capturing synergies among resources, enabling
work units to extract value from underutilized resources through pooling them together and creating new
and innovative resource configurations (Eisenhardt & Galunic, 2000). The basic rationale for collective
mind as a dimension of resource reconfigurability comes from the collective minds ability to interrelate
actions and support collective creativity. A collective mind also helps develop new perceptual schema,
improvising novel resource matches and rapidly executing necessary resource transfers (Galunic &
Eisenhardt, 2001). Therefore, a collective mind is posited as a key means for enabling effective resource
reconfiguration, as justified in detail below.
First, collective mind represents a common ground on which effective communication and
collaboration can emerge in team settings (Clark, 1996). Common interpretation can also sustain resource
integration efforts in a meaningful way since a collective mind enhances mutual comprehension and
interpretation of the knowledge exchanged, enabling the formulation of resource contributions (Krauss &
Fussell, 1990). A collective mind then combines knowledge resources in new and innovative ways
through heedful interrelation (Weick, 1995), thus facilitating an effective resource reconfiguration. As
knowledge resources are revealed, shared, and integrated, the resulting resource base guides how
reconfiguration of new competencies to further enhance performance (Okhuysen & Eisenhardt, 2002). A
collective mind also facilitates the processes on which resources are collectively managed, making it
easier and less expensive to revamp functional competencies over time.
Second, collective mind specifies broad, tacitly understood rules for appropriate collective
action, especially under unspecified contingencies (Camerer & Vepsalainen, 1988). The ability to
integrate the efforts of various actors is related to the capacity to innovate because creativity often springs
from the interaction of different knowledge sets (Grant, 1996a). Good communication allows team
members to change flexibly and create novel ideas (Brown & Eisenhardt, 1997). A system that is tied

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together more densely is able to comprehend what is occurring and adapt to new conditions. A complex
pattern of interrelations is more able to sense and regulate the complexity created by unexpected events
(Weick & Roberts, 1993). For example, a common understanding and interpretation can improve
collective decision making to cope with new situations (Dougherty, 1992; Garud & Nayyar, 1994).
Collective mind facilitates endemic change and success in high-velocity environments (Brown &
Eisenhardt, 1997). Following Grant (1995), collective mind involves blending cross-functional resources
and balancing them to facilitate the potential for resource adaptation.

3.3.4 Market Orientation and Resource Reconfigurability


Adaptation or reconfiguration is essentially a struggle for alertness. The ability to sense the need
to reconfigure existing functional competencies is essential, especially in rapidly changing environments.
Following the sense and respond paradigm (Bradley & Nolan, 1998; Haeckel & Slywotzky, 1999),
sensing the need for resource reconfiguration is done through (a) recognizing market opportunities, and
(b) identifying resource gaps and core rigidities that prevent pursuing such opportunities. Market
orientation serves both means, providing the speed and effectiveness to sense new opportunities, and also
to respond by transforming existing resources to pursue these opportunities (D'Aveni, 1994; Ferrier,
Smith, & Grimm, 1999; Young, Smith, & Grimm, 1996)(Hurley and Hult 1998).
Market orientation also promotes receptivity to innovativeness (Deshpande, Farley, & Webster,
1993; Hurley & Hult, 1998). Effective resource reconfiguration relies on sensing valuable market
opportunities, mobilizing the necessary resources to pursue them, and exploiting these new opportunities
(Wheeler, 2002). First, an important aspect of dynamic capabilities is to sense market needs in changing
market conditions (Fowler et al., 2000). Raff (2000) argues that organizations with well-developed
sensing capabilities can better reconfigure their resource base to capitalize upon new strategic
opportunities. An effective choice of resource configuration must be guided by an understanding of the
industry structure, the needs of the customer segments, and market trends. Market orientation suggests
that windows of opportunity must be detected to identify new market positions. By tracking
opportunities early, resources can be dedicated to the most promising opportunities. Reconfiguration and

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change are costly; hence, the ability to quickly sense the environment, disseminate market intelligence
(Zander & Kogut, 1995a), and initiate change is fundamental (Teece et al. 1997).
Another crucial aspect of resource reconfiguration is identifying internal resource gaps (Grant,
1995). This is consistent with the notion of activation triggers (Zahra & George, 2002a), which are
events that encourage response to environmental stimuli, such as organizational crises, failures, economic
slowdown, among others. Market orientation encompasses the ability to recognize existing ineffective
competencies (rigidities), and signal that ineffective functional competencies must be retired (Galunic &
Eisenhardt, 2001). Jaworski & Kohli (1996) view innovation as an outcome of market orientation,
especially when coupled with entrepreneurial values (Slater, 1997; Slater & Narver, 1995). In sum,
market orientation is a dynamic process that identifies, screens, disseminates, and applies market
intelligence (Verona, 1999) to help the reconfiguration of existing resources to address market-related
needs (Vorhies & Harker, 2000) and new conditions (Sambamurthy et al., 2003).

3.4 Relationship Among Lower-Order Capabilities


Having described the positive role of each first-order factor on resource reconfigurability, the
next step is to justify the reciprocal relationships among the first-order dimensions. This is to suggest that
a higher-order structure can be used to parsimoniously explain the interrelationships among all of the
underlying capabilities. Nonetheless, it is beyond the scope of this study to examine whether any
unidirectional effect is greater, but rather to argue that each factor in a dyad has a mutually reinforcing
effect on the other, even if the effect may not necessarily be equal.

3.4.1 Coordination Competence and Absorptive Capacity


Absorptive capacity requires intensive coordination and rests on how effectively knowledge can
be captured, shared, and disseminated. Given that knowledge is often disparately embedded, coordination
affects learning (Tsai, 2001). When it is not clear where knowledge resides, learning cannot effectively
occur (Brown & Eisenhardt, 1995). Tsai (2002) empirically shows that coordination is important for

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knowledge sharing within organizations, while Van den Bosch et al. (1999) argue that coordination
enhances knowledge sharing (p. 559).
Coordination competence facilitates all dimensions of absorptive capacity - acquisition,
assimilation, transformation, and exploitation. First, knowledge acquisition is enhanced when knowledge
is properly coordinated (Kusunoki et al., 1998). Absorptive capacity requires a sender-receiver mode that
needs to be coordinated with a common set of rules for effective knowledge acquisition (Sobrero &
Roberts, 2001). Second, coordination facilitates the diffusion of knowledge (Zander & Kogut, 1995b).
For instance, coordination codifies knowledge into explicit instructions (Grant, 1996b), both through
formal rules and also through informal communication (Camerer & Vepsalainen, 1988; Kale et al., 2002).
Empirical evidence shows that various coordination mechanisms indeed facilitate learning (Tsai, 2001,
2002; Van den Bosch et al., 1999). Third, coordination competence influences knowledge transformation
by ensuring that the right knowledge is at the right place at the right time. Finally, coordination is also
needed to incorporate tacit and explicit knowledge into work processes in order to achieve knowledge
exploitation. For example, Dyer & Nobeoka (2000) argues that a central unit that is designed to
coordinate knowledge across Toyotas network is primarily responsible for the networks increased
learning capability. In sum, as the capacity to coordinate knowledge increases, the degree of absorptive
capacity increases (Cohen & Levinthal, 1990). Van den Bosch et al. (1999) found evidence that
coordination mechanisms facilitate the knowledge absorption process by enabling the acquisition,
integration, and utilization of knowledge.
Not only coordination influences learning, but also absorptive capacity influences coordination
competence (Brown & Eisenhardt, 1995). Essentially, groups are coordinated through processes of
knowledge transfer and resource sharing (Galbraith, 1977; Gresov & Stephens, 1993). For example,
Moreland, Argote, and Krishnan (1996) argue that a transactive memory system allows team members to
better coordinate their knowledge. In sum, there is a reciprocal, mutually reinforcing relationship between
coordination competence and absorptive capacity.

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3.4.2 Coordination Competence and Collective Mind


Before discussing the relationship between coordination competence and collective mind, it is
important to first distinguish between coordination competence and collective mind. Collective mind
suggests that teams function as a single entity as opposed to a coordinated set of discrete units (Madhaven
& Grover, 1998). Also, coordination competence is the ability to manage knowledge (often achieved at
the managerial level), while collective mind deals with alignment o f cognitive understanding (often
achieved at the work level). While coordination is fundamental, it is also important for group members to
build a shared understanding and collective sense-making (Weick, 1995).
The effectiveness o f coordination depends on the existence of common language and a shared
meaning since coordination depends on the underlying processes of communication and perception of
shared objects (Malone & Crowston, 1994). Coordinated activities become possible as work units can
access a unified knowledge set in real time (Rockart & Short, 1989). For example, a collective mind
allows group members to coordinate activity with an implicit harmony; without such understanding,
coordination becomes difficult. Van den Bosch et al. (1999) describe the socialization aspect of
coordination, which refers to coordination through collective cognitive maps. A common language and
understanding can facilitate effective coordination and integration of knowledge. Crowston and
Kammerer (1998) even argued that a well-developed collective mind becomes a coordination mechanism.
A collective mind is also the result o f highly coordinated interdependencies. Faraj and Sproull
(2000) infer that collective mind is a socially shared cognitive process that develops and evolves to
manage dependencies. Shared intellectual capital often occurs by bringing together knowledge from
disparate sources (Nahapiet & Ghoshal, 1998). If participants know how to coordinate their activities, a
coherent global structure can emerge from these local interactions (Hutchins, 1990). When groups attain
highly coordinated interactions, they enhance sense making and enable common understanding.
Interrelation, a key dimension of a collective mind deals with connecting and balancing the pieces,
understanding how one piece changes the rest, and how each piece affects the whole structure (Segars &
Dean, 2000). In sum, there is a reciprocal relationship between coordination competence and collective
mind in the sense that each capability, ceteris paribus, has a positive impact on the other.

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3.4.3 Coordination Competence and Market Orientation


There is also a mutual relationship among coordination competence and market orientation.
Coordination regarding tasks and assignments and member roles and responsibilities has been linked to
the ability to successfully disseminate market intelligence (Cannon-Bowers, Salas, & Converse, 1993). In
addition, Robins (1991) argues that coordination can be achieved when NPD work units gather market
intelligence, and then share this knowledge within the work unit. In addition, Vorhies and Harker (2000)
argue that the ability to coordinate various sources of knowledge helps responding to market conditions
fast, thus helping groups become more market oriented to environmental changes. In sum, coordination
competence and market orientation are positively related.

3.4.4 Absorptive Capacity and Collective Mind


For a collective mind to build, systematic routines must be in place to incorporate, transform,
and exploit knowledge (Van de Bosch et al. 1999). Yoo and Kanawattanachai (2001) posit that the
development of a collective mind represents higher order team learning. Crowston and Kammerer (1998)
further argue that knowledge dissemination is necessary to build a collective mind. The authors argue that
a group cannot develop a collective mind without a learning system (p. 191). Jassawalla and Sashittal
(1999) explain that a collective mind develops through leaming-by-doing. This is because incomplete
knowledge restricts the ability of individuals to interrelate to the group (Van den Bosch et al., 1999).
On the other hand, absorptive capacity requires common communication and perspectives
(Brown & Duguid, 1991). Shared cognitive maps and common language facilitate knowledge flows, thus
enhancing absorptive capacity (Lane & Lubatkin, 1998). In terms of knowledge acquisition, work units
need to speak the same language to share knowledge and leam where critical knowledge resides. Tsai
(2002) shows that social interaction provides opportunities to share ideas and facilitate knowledge flows.
A collective mind also facilitates knowledge assimilation as work units share a common cognitive
structure (Cohen & Levinthal, 1990; Senge, 1990). As a work units collective mind develops, absorptive
capacity will increasingly be determined by a collective mind (Yoo & Kanawattanachai, 2001). In sum,

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absorptive capacity develops through repetitive collective action and systemic interaction routines
(Badaracco 1991, Kogut and Zander 1992).

3.4.5 Absorptive Capacity and Market Orientation


Absorptive capacity influences the ability to detect, define, and exploit market opportunities
(Cohen & Levinthal, 1990). New intelligence helps firms to be more proactive and better position
themselves to understand further new opportunities (Helfat & Raubitschek, 2000). Hamel and Prahalad
(1994) and Volberda (1998) argue that absorptive capacity is related to industry foresight. In fact, Kumar
and Nti (1998) argue that the degree to which a firm responds to market intelligence and realize their
objectives depends on its absorptive capacity.
Being alert to market intelligence also raises the work units exposure to new knowledge,
thereby increasing its knowledge acquisition capacity. Indeed, market orientation has been shown to
relate to learning orientation (Farrell, 2000; Hurley & Hult, 1998; Sinkula, 1994b). Summarizing these
arguments, a reciprocal relationship between absorptive capacity and market orientation is expected.

3.4.6 Collective Mind and Market Orientation


Finally, an evolved collective mind creates a heightened understanding o f the environment.
Collective mind suggests that organizations think on their feet and do the right thing in novel situations
(Weick & Roberts, 1993). According to the authors, the more developed a collective mind is, the greater
is the capability to comprehend events that evolve rapidly in unexpected ways and meet situational
demands (p. 366). For example, a collective mind has been related to sustained success in coping with
emergency situations (Weick & Roberts, 1993). Representation, an important dimension of a collective
mind relates to mapping of the external environment (Ancona & Caldwell, 1992). Therefore, a collective
mind positively influences market orientation.
Similarly, an awareness mechanism with multiple sensors is important to collect multiple bits of
information and implement a collective dialog (Weick & Roberts, 1993). Market orientation helps work
units to collectively understand and act upon discontinuities, problems, and new opportunities (Zahra &

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George, 2002a). In sum, a collective mind relates to attentiveness and alertness, which in turn relate to
better comprehending the environment and creating opportunities for collective understanding and action.

3.5 Resource Reconfigurability as a Formative Structure


Drawing from the previous session, there are co evolutionary, mutually reinforcing relationships
among the proposed four first-order factors, where each facilitates the dynamic process of reconfiguring
resources. Complementarity represents an enhancement of resource value since synergies among the
proposed capabilities produce greater returns (Collis & Montgomery, 1995; Milgrom et al., 1991). A
complementary interaction among capabilities typically enhances their joint value (Barney, 1991). For
example, Slater and Narver (1995) suggest that market orientation only enhances performance when it is
combined with a learning orientation (absorptive capacity). Similarly, Hult and Ketchen (2001) argue that
market orientation can only enhance success in combination with entrepreneurship, innovativeness, and
learning. In addition, a complex synergistic combination of multiple capabilities is hard to be imitated by
competitors, thus creating a stronger basis for competitive advantage (Leonard-Barton, 1992). Following
Porter (1996) when capabilities have complementarities, they are likely to create a sustained competitive
advantage. This view is consistent with Mendelson (2000) who argues that the aggregate of his proposed
organizational IQ dimensions is the direct performance antecedent (p. 521).
Resource reconfigurability is an inter-connected set of knowledge-intensive processes. Instead of
having distinct dimensions that are hypothesized to influence performance outcomes, a tightly coupled
system of capabilities is proposed to parsimoniously explain their inter-relationships and their aggregate
impact on other variables. This suggests that the literature has proposed the six relationships among the
proposed four underlying capabilities (as justified above), but I propose that an overarching variable
captures all these six relationships under a unitary representation. This results in a more parsimonious
model that is both theoretically amenable and also managerially relevant.
In terms o f the exact nature of the resource reconfigurability structure, I propose a second-order
formative variable that draws upon each of the interrelated first-order capabilities. Each of the four
capabilities is expected to cause reconfigurability, where each contributes to a latent construct. This is

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because the implementation of dynamic capabilities is consequential (Eisenhardt & Martin, 2000). A
formative factor suggests that for the underlying lower-order factors, even if they are related, a change in
any given factor does not necessarily cause a change in another, even if it may. This is to differentiate
from reflective structures where a higher-order structure necessitates relationships among its lower-order
factors. The above arguments lead to the first formal hypothesis:
H I : Resource reconfigurability is a second-order formative structure form ed by (a)
coordination competence, (b) absorptive capacity, (c) collective mind, and (d) market
orientation.

4. Dynamic Capabilities in New Product Development


The NPD context has long been touted as an area that organizations can develop a strategic
advantage (Leonard-Barton, 1992; Verona, 1999) and long-term competitiveness and profitability (Ozer,
1999). NPD is the collection of all activities that take place from interpreting market needs and technical
possibilities to creating finished products (Trygg, 1991). NPD is defined as the set of activities that start
with the perception o f a market opportunity and ending in the production, sales, and delivery o f a
product (Ulrich & Eppinger, 1995)(p. 2).
Since dynamic capabilities are evident in strategic, knowledge-intensive, and problem-solving
processes, they were touted to be particularly relevant in NPD (Eisenhardt & Martin, 2000). After all, the
most prominent examples of generating new knowledge are NPD or R&D groups (Alavi, 2000). The
NPD process was described as the core domain where knowledge is brought to bear (Danneels, 2000).
The need to adapt to change to match evolving market and technical conditions is particularly evident in
NPD processes; long-term success is associated with a superior stream of new products, not any single
product (Rosenthal, 1992). Since all NPD projects require renewed functional competencies to build new
products, dynamic capabilities are essentially in NPD processes.

4.1 The New Product Development Context


The NPD process entails complex interactions that combine and exploit resources from multiple
sources (Clark & Fujimoto, 1991; Wheelwright & Clark, 1992). Knowledge creation and dissemination is

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a central theme in NPD (Madhaven & Grover, 1998). Wind and Mahajan (1997) argue that the key
elements of successful NPD processes are (a) cross-functional integration to facilitate diverse sources of
knowledge, and (b) collaboration with multiple partners to infuse new knowledge.
NPD is a complex, competitive, and costly process that must integrate knowledge resources
from several disciplines into a coordinated and integrated effort to produce innovative and commercially
successful products (Norling, 1998). According to the knowledge-based view of NPD (Leonard-Barton,
1992), knowledge resources are the raw materials of NPD for creating functional competencies. Indeed,
Madhaven and Grover (1998) viewed the NPD process as a knowledge management process.

4.1.1 Unit of Analysis in NPD context


The new operating philosophy in NPD is based on functionally-integrated project work units
(Eisenhardt & Tabrizi, 1995; Griffin & Hauser, 1992). This philosophy has a cross-functional orientation
from the beginning of the development cycle to minimize the time lost due to rework cycles by creating a
mini-project organization. Cross-functional work units are considered the structure of choice for
managing NPD (Brown & Eisenhardt, 1995; Sethi, Smith, & Park, 2001; Song, Michael, Montoya-Weiss,
& Schmidt, 1997). Amit and Zott (2001), Tiwana (2002), and Dyer and Nobeoka (2000) also argue that
the small group setting is the most relevant unit and level of analysis. This is consistent with the emerging
reliance on work units and virtual teams by organizations (Cohen & Bailey, 1997; Townsend, DeMarie,
& Hendrickson, 1998). Therefore, the proposed unit of analysis in this study is the NPD work unit.

4.3 Resource Reconfigurability in New Product Development


The proposed resource reconfigurability construct readily applies to NPD processes that require
integration and exploitation of diverse knowledge resources. In fact, NPD is a critical function by which
organizations diversify, adapt, and even reinvent their resources to match evolving market and technical
conditions to create technically sophisticated products that satisfy customer demand (Schoonhoven,
Eisenhardt, & Lyman, 1990). The iterative problem-solving context of NPD helps the development of
new competencies (Henderson & Cockbum, 1994; Iansiti & Clark, 1994). In fact, NPD is an important

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process by which organizations reconfigure their resources (Eisenhardt & Martin, 2000). Innovation and
creativity are very important in NPD, which is a non-routine work. NPD is a process that can expand the
competence base of the organization, and further enable new products (Danneels, 2000). By focusing on
the NPD area, resource reconfigurability is proposed as the fundamental process to aggregate, coordinate,
expand, and recombine knowledge-based resources to build new functional NPD competencies.
The proposed underlying dimensions of resource reconfigurability are also by themselves
relevant to NPD. The importance of coordination, absorptive capacity, collective mind, and market
orientation is widely touted by NPD researchers (Brown & Eisenhardt, 1995; Krishnan & Ulrich, 2001;
Sivadas & Dwyer, 2000). For example, a primary function of a NPD work units is to coordinate distinct
individual activities (Clark & Fujimoto, 1987; Madhaven & Grover, 1998). Henderson and Cockburn
(1994) show the importance o f organizing principles to coordinate R&D activities. In addition, the
importance of absorptive capacity in NPD has also been widely recognized (Adler & Cole, 1993;
Appleyard, 2003; Kumar, Nti, & Kofi, 1998; Sivadas & Dwyer, 2000; Stock, Greis, & Fischer, 2001).
Since an NPD group is a collection of individuals from different functions, no single individual
possesses the required knowledge to develop a successful product. Hence, NPD work units must connect
the thought worlds of multiple parties to combine their knowledge to harness collective wisdom.
Collective mind is beneficial when (a) there is a need for high reliability, (b) non-routine work, and (c)
interactive complexity. NPD is a complex, competitive, costly process that must integrate several sources
of knowledge from different disciplines into a single and coherent effort to produce innovative, reliable,
and commercially successful products. The combination of high complexity, high uncertainty, and
interdependence makes NPD a context where collective mind would be beneficial. Finally, NPD work
units must be continuously alert to market changes, such as customer demands for new product features,
changes in customer demands, and competing new products. The ability to be proactive and anticipate
market needs before the competition can be a key source of competitive advantage in NPD (Clark &
Fujimoto, 1987). Therefore, market orientation is a key dimension in an NPD context that helps NPD
work units build new competencies and successful new products.

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In sum, the NPD context is an ideal environment where the proposed set of dynamic capabilities
could apply and tested. In fact, Eisenhardt and Martin (2000) broadly describe the NPD process as a
dynamic capability itself to signify its importance for transforming organizations through new products.

5. Interorganizational Dynamic Capabilities


The dynamic capabilities approach views the firm as the unit of analysis (Teece et al., 1997). If
one draws from this logic, resource reconfigurability and its underlying capabilities must be restricted
within a single organization. However, Kumar and Nti (1998) argue that interorganizational relationships
are also subject to dynamic variables since inter-firm partners must integrate their resources beyond their
own firm boundaries to build a relational competitive advantage. Since dynamic capabilities can be both
intra- or inter-organizational, resource reconfigurability should exist for both internal and inter-firm
relationships, as theoretically justified below.

5.1 Relational View


Organizations are adopting a cooperative logic and move toward strategic alliances (Kale et
al., 2002; Koza & Lewin, 1998; Lorange & Roos, 1992; Mowery, Oxley, & Silverman, 1996), valueadding partnerships (Blankenburg Holm et al., 1999; Primo & Amundson, 2002; Zajac & Olsen, 1993),
and increased collaboration (Bensaou, 1997; Cannon & Perrault, 1999; Dwyer, Schurr, & Oh, 1987;
Dyer, 2000; Jap, 2001; Morgan & Hunt, 1994; Powell, Koput, & Smith-Doerr, 1996). Following Gulati
and Singh (1998), there are eight primary reasons for interorganizational collaboration: sharing o f costs,
production facilities, and complementary technology, reducing the time span of innovation, joint
development of new technology, access to new markets, new products, and financial resources.
The relational view is consistent with this major directional change in interfirm relations, from
arms length exchanges to relational contracting (MacNeil, 1980), working partnerships (Anderson &
Narus, 1990), trust-based relationships (Doney & Cannon, 1997; Ganesan, 1994; Morgan & Hunt, 1994),
R&D consortia, cross-licensing agreements, equity sharing, and joint ventures (Bensaou & Venkatraman,
1995; Dyer, 1997, 2000; Gulati & Singh, 1998; Lane & Lubatkin, 1998; Moss-Kanter, 1994).

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Many authors argued that there is enormous potential residing outside organizational boundaries
(Brouthers, Brouthers, & Wilkinson, 1995; D'Adderio, 2001; Dyer & Singh, 1998; Gulati & Singh, 1998;
Sobrero & Roberts, 2001). If properly managed, interfirm interdependence can be a significant source of
value (Blankenburg Holm et al., 1999; Helper & MacDuffie, 2001; Moss-Kanter, 1994; Zajac & Olsen,
1993). In fact, interfirm relationships are associated with increased productivity, long-term learning
effects, and innovative products (Dyer, 2000; Gulati, Nohria, & Zaheer, 2000; Jap, 2001).
A common weakness of the resource-based view is its focus on firm-specific resources,
providing less insight into the processes by which multiple organizations work collaboratively to
undertake common routines. Interorganizational relationships have idiosyncratic and complementary
resource combinations (Kogut & Zander, 1992; Moorman & Slotegraaf, 1999), which require a distinct
conceptualization on their own right. Therefore, there has been a recent interest in exploring the
importance of resources that extend beyond organizational boundaries (Gulati, 1999). Interorganizational
relationships are defined as purposive strategic relationships between independent firms (Mohr &
Spekman, 1994). The relational view posit the interorganizational relationship as the unit of analysis
(Dyer & Singh, 1998), examining how organizations develop collaborative advantage (DAdderio, 2001;
Dyer, 2000; Powell et al., 1996; Zajac & Olsen, 1993). Following the resource-based view, taking
advantage of interorganizational relationships has also been considered as a firm-specific distinctive
capability on its own right (e.g., Lorenzoni and Lipparini 1999, Madhok and Tallman 1998). However,
this study views interorganizational relationships as the relevant unit of analysis. Collaborative advantage
is an joint competitive advantage that enables strategic alliances to compete more effectively (Dyer &
Singh, 1998; Jap, 2001). The relational view posits that the output of an alliance is a collective good since
the benefits are available to both partners, even if not equally distributed. The relational view is
particularly applicable to areas where knowledge is broadly distributed among organizations, such as the
biotechnology industry (Grant & Baden-Fuller, 1995; Powell et al., 1996).

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5.1.1 Interorganizational Work Units


Similar to NPD work units, interorganizational relationships are also increasingly focusing on
teams as the primary vehicles through which they are orchestrated (Moss-Kanter, 1994; Sambamurthy &
Zmud, 2000). Drawing from this focus, the unit of analysis for interfirm NPD processes is the
interorganizational NPD work unit, which can be formed by two or more organizations.3 Following
(Sivadas & Dwyer, 2000), regardless of whether the NPD effort is an intra- or interorganizational
enterprise, its success hinges on the cooperative competency of the units involved (p. 33).
The interorganizational work unit is consistent with the relational view (Dyer & Singh, 1998),
which suggests that business processes can extend beyond organizational boundaries and groups can be
formed by multiple organizations. Work units are also consistent with (Okhuysen & Eisenhardt, 2002)
who argue that knowledge integration typically takes place in work units, which can be formed by more
than one organization. By viewing the interorganizational work unit as the unit and level of analysis
(Galunic & Eisenhardt, 2001), dynamic capabilities are assumed to exist in such work units.

5.2 Interorganizational Dynamic Capabilities


There is a consensus for the importance of combining complementary resources to build a
competitive advantage (DAdderio, 2001; Dyer, 2000). Interorganizational relationships also promote
capability building by acquiring and exploiting knowledge that is jointly developed with their partners
(Grant & Baden-Fuller, 1995). For example, Dyer and Singh (1998) argue that superior knowledgesharing routines can result in relational rents. Harrigan and Newman (1990) suggest that the primary
focus of successful partnerships is to combine and utilize resources than neither firm can manage
individually. This is consistent with Orlikowski (2002) who describes capabilities are collective,
grounded in the interactions among both intra- or inter-organizational members.
Similar to internal work units, dynamic capabilities are also based on dynamic routines that help
inter-firm work units assemble, integrate, and effectively deploy their joint resources. An inter
organizational partnership also faces changes in the business environment and needs to quickly respond,

3 When dealing with intra-organizational processes, the respective unit of analysis is the internal work unit.

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adapt, and reconfigure its resource base to build new competencies in order to match evolving market
needs. Rather than considering demolishing existing alliances when new needs arise, interorganizational
dynamic capabilities are the processes that help interfirm partnerships survive and thrive. Drawing from
these arguments, I formally propose that dynamic capabilities can exist at an inter-organizational level.
The collective nature of dynamic capabilities arises from mutual interdependence of all stakeholders in a
relationship, irrespective of organizational identity.

5.2.1. Interorganizational Resource Reconfigurability


Resource reconfigurability possesses all characteristics of internal capabilities, but it can also
transcend firm boundaries. Similarly, it describes the ability to achieve coordination, expansion, and
integration of resources across organizational boundaries. Interorganizational resource reconfigurability
is relationship-specific, and is difficult to replicate because it possesses diverse resources that are deeply
embedded in interfirm processes. Therefore, it can become the basis for collaborative advantage (Dyer
& Singh, 1998) for the interfirm work unit.
Inter-organizational resource reconfigurability is viewed as a higher-order construct comprising
of coordination competence, absorptive capacity, collective mind, and market orientation. All these
factors can also extend to an inter-organizational level. Coordination is needed to harmonize the wide
array of interdependent resources that cut across different organizations and are dispersed among many
individuals. Coordination problems increase with geographical dispersion (Hinds & Mortensen, 2002).
Since managing interdependence within organizational boundaries has been considered a major
managerial problem (March & Simon, 1958), achieving inter-firm coordination is a geometrically
increasing challenge (Rockart & Short, 1989).
In practice, Argyres (1999) describes a well-coordinated partnership among four firms that act as
a virtual organization by effectively using IT. Learning is often the primary purpose and major outcome
of strategic alliances (Hamel, 1991; Levinson & Asahi, 1996; Powell et al., 1996). Kumar and Nti (1998)
describe interorganizational absorptive capacity as the ability to appropriate knowledge from an alliance.
Following Grant (1996a), learning is the regular pattern of interfirm interactions that permits the

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transfer, recombination, or creation of specialized knowledge (p. 665). Relative or partner-specific


absorptive capacity characterizes the ability to appropriate knowledge generated through an alliance
relationship (Lane & Lubatkin, 1998).
Evidence suggests that learning alliances tend to outperform others on product innovation
(Von Hippel, 1998). Interfirm work units can also build a collective mind by engaging in knowledge
sharing, creating shared mental models, and representing a group mentality. Finally, interorganizational
work units can create market orientation by being communally alert to new market opportunities.

5.3 Interorganizational NPD


Traditional NPD processes have been predominantly examined within traditional organizational
boundaries (Brown & Eisenhardt, 1995; Krishnan & Ulrich, 2001). However, the low cost, yet advanced
functionality of Internet-based IT tools enable interorganizational NPD collaboration, R&D alliances, and
supplier involvement in NPD (Primo & Amundson, 2002). Interfirm NPD has recently received increased
attention,4 since it also has the potential to attain strategic objectives. Inter-firm NPD is a formalized
collaborative arrangement among two or more organizations to co-develop a new product.
Interorganizational NPD can take the form of strategic alliances, joint ventures, or long-term
buyer-seller partnerships (Gulati et al., 2000). The automotive industry is a useful NPD example since the
automobile has an integral product architecture (Ulrich & Eppinger, 1995), a large supplier role in the
design process (Helper & MacDuffie, 2001) and intense cross-functional integration (Wheelwright &
Clark, 1992). Automobile manufacturers are becoming the coordinators of a large supplier network
(Bensaou & Venkatraman, 1995), emphasizing inter-firm relationships (Dyer & Nobeoka, 2000).
Organizations are increasingly dependent on suppliers to bring new technology solutions (Scott,
2000). Supplier collaboration in NPD is driven by the rising costs of NPD, the need for faster products to
market, and the desire to acquire supplier technology and expertise (Bruce, Fiona, Dale, & Dominic,
1995; Helper, 1991). Takeishi (2002) reports a rapid increase in the degree of NPD outsourcing, even for

4 According to CIM Data (www.cimdata.com~). projections show collaborative NPD expenditures totaled a $2.2
billion in 2000, and the have been growing at a rate of 20 percent per year, expected to reach $4.4 billion by 2004.

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critical engineering tasks. The success of Japanese firms has greatly been attributed to their strong ties
with their suppliers (Dyer & Nobeoka, 2000; Nonaka, 1990), a phenomenon also observed in U.S. (Iansiti
& West, 1997) and European automakers (Dyer, 1996).
Following Sivadas and Dwyer (2000), the same factors of effective intra-organizational NPD
could apply to an inter-organizational context. Even if dynamic capabilities and the proposed research
model are proposed to hold for both intra- and inter-organizational NPD units, any potential differences
between the two types are still controlled for. This is because internal NPD work units still rely on
different functional areas (Song et al., 1997). Based on this logic, interfirm NPD relationships can possess
dynamic capabilities that are likely to be important sources o f ideas and innovations for new products
(Lamming, 1993; Powell et al., 1996; Ragatz, Handheld, & Scannell, 1997; Von Hippel, 1998).

5.4 Summary
This study captures the core principles of dynamic capabilities (Teece & Pisano, 1994; Teece et
al., 1997) to propose the concept of resource reconfigurability, defined as the ability to manage internal
and external resources to facilitate their recombination in innovative ways to generate new functional
competencies that match environmental contingencies. The basic resource is proposed to be knowledge,
drawing upon the knowledge-based view (Grant, 1996b). Resource reconfigurability is proposed to be a
second-order formative construct, formed by four underlying first-order dynamic capabilities, namely
coordination competence, absorptive capacity, collective mind, and market orientation. Each of these
factors is thoroughly described along with its fundamental components. In addition, the inter
relationships among these four dimensions and their causal (formative) impact on resource
reconfigurability are illustrated in order to propose a parsimonious higher-order formative structure.
The proposed resource reconfigurability construct is proposed to be relevant for both intra- and
inter-firm work units, drawing upon the resource-based view (Barney, 1991) and the relational view
(Dyer & Singh, 1998). Finally, resource reconfigurability is proposed to be particularly relevant in NPD
work units (both internal and inter-organizational), arguing that the NPD context is ideal for examining
resource reconfigurations into new functional competencies.

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CHAPTER 3: DEVELOPMENT OF RESEARCH MODEL


1. Overview of the Research Model
This study proposes a framework for delineating how different types of organizational abilities
(dynamic capabilities, IT competence, and functional competencies) interrelate to influence competitive
advantage. Resource reconfigurability is the key-mediating variable in the model. Two consequences of
resource reconfigurability are examined: a direct effect on competitive advantage and an indirect through
the alignment between functional competencies with environmental turbulence (strategy-environment
alignment). IT competence (Bharadwaj, 2000; Sambamurthy & Zmud, 2000) is proposed as a key
antecedent o f resource reconfigurability. Interaction effects due to environmental turbulence are also
hypothesized. The proposed research model shown in Figure 2 applies to both intra- and inter
organizational NPD work units. While several other constructs could have been included, a major goal
was to balance the models parsimony and comprehensiveness in capturing key organizational abilities.5
To highlight the role of resource reconfigurability, multiple NPD success factors are also controlled for.

Figure 2: P ro p o sed R esearch Model


Environmental
Turbulence
H8

H6

H7

Resource
Reconfigurability
IT Competence
H4

H5

Coordination Competence
Absorptive Capacity
Collective Mind
Market Orientation

H2

H3b

Competitive
Advantage

H3a

HI
StrategyEnvironment
ALIGNMENT

Control

Variables

5 The research model focuses on collective abilities, as opposed to individual actors (Verona, 1999). While individual
and managerial sources of action influence collective abilities (Iansiti & Clark, 1994), they are not resident in any
single individual but they depend on the links across a mosaic o f individuals (Nelson & Winter, 1982). Nonetheless,
it is important to mention the role of heavyweight leaders (Ancona & Caldwell, 1992; Brown & Eisenhardt, 1995;
Clark & Fujimoto, 1991) and top management support, commitment, and leadership (Day, 1994).

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2. Building a Competitive Advantage


The two most important means for achieving a sustainable competitive advantage in dynamic
markets are through innovation and strategic flexibility (Barney, 1991). The accelerated degree of change
in the business environment quickly erodes traditional competitive advantages and market positions
(Alavi, 2000; Sambamurthy et al., 2003). Under these conditions, it becomes imperative to quickly adapt
to new environmental contingencies and reconfigure resources into new functional competencies that
better match emerging conditions. Hence, resource reconfigurability is proposed to be a viable basis for
building a competitive advantage. This is especially important in NPD that work units must be flexible to
leverage and recombine their resources, skills, and expertise in innovative ways to develop new
innovative products that meet changing customer needs (Kazanjian, Drazin, & Glynn, 2002).

2.1 Competitive Advantage in New Product Development


Competitive advantage in NPD results from designing high-quality, cost-effective products that
meet customer needs, while outperforming competitive products (Vorhies & Harker, 2000). NPD success
is generally measured by the time to develop the product (time to market), development cost (process
efficiency), the products quality, and its innovativeness (Clark & Fujimoto, 1991; Eisenhardt & Tabrizi,
1995; Griffin, 1997; Iansiti & Clark, 1994). Without lack of generality, NPD performance can be viewed
as two major aspects, (a) product quality and innovation, and (b) process efficiency (time to market and
overall development cost), which are considered fundamental in evaluating NPD performance outcomes
(Brown & Eisenhardt, 1995; Primo & Amundson, 2002).

2.1.1 Product Effectiveness


Product effectiveness generally consists of (a) product quality and (b) product innovativeness.
First, product quality has a major influence on market success and profitability of new products (Sethi,
2000). According to AMR Research fwww.amrresearch.com!. poor quality costs the industry more than
$8 billion annually in warranty expenses. Quality refers to product attributes, such as appearance,
performance, and durability (Clark & Fujimoto, 1991). Quality characteristics, such as architecture,

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aesthetics, and ergonomics are considered a key source of competitiveness (Ulrich & Eppinger, 1995).
Product quality is defined as the perceived product superiority compared to competing alternatives
(Garvin, 1988). Second, product innovativeness presumes a degree of creativity in the new product
design. New product innovativeness has been viewed as an important underlying explanation of new
product success (Henard & Szymanksi, 2001). Wind and Mahajan (1997) and Brown and Eisenhardt
(1997) suggest that product innovation is central to firm success. Product innovativeness is herein defined
as the extent to which a new product provides meaningfully unique benefits (Sethi et al., 2001).

2.1.2 Process Efficiency


Process efficiency generally consists of (a) time to market and (b) overall development cost.
First, the speed of product development has been touted as a critical aspect for financial success (Cordero,
1991; Mabert, Muth, & Schmenner, 1992). A common antagonist in todays competitive markets is time
- how to bring products to markets faster, how to shorten NPD cycles, and how to efficiently manage the
entire supply chain to deliver products faster. Long NPD cycles present barriers to responding quickly to
changing market demand. Second, the overall cost of product development is another key aspect of
process efficiency since it captures the complete outlays for a product to reach the market.

2.2 Trade-Off in New Product Development


There is a long-standing trade-off in NPD between process efficiency (time and cost reduction)
and product quality and innovation (Cohen, Eliashberg, & Ho, 1996; Sobrero & Roberts, 2001). In other
words, firms have traditionally taken more certain, but less innovative projects to assure efficiency, or
they have sacrificed process efficiency to create innovative, high-quality products. Despite the trade-off,
it is possible to simultaneously improve the speed and quality of new products (Rangaswamy & Lilien,
1997). The resource-based view also posits that firms with superior resources are profitable by offering
an attractive combination of product cost and quality. This is consistent with Bakos and Treacy (1986)
who propose a model of competitive advantage with two primary factors - (a) product effectiveness,
which is likely to create bargaining power through unique product features (e.g., product quality and

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innovative attributes), and (b) process efficiency, which is arises from economical practices (p. 114).
Following this logic, I propose competitive advantage in NPD as the combination of product
effectiveness and process efficiency,6 operationalized as the interaction between these two factors.
The proposed view of competitive advantage is consistent with the marketing and NPD
literatures. For example, customers demand innovative, high quality products at a low price (Hitt et al.,
1998), which are likely to build a competitive advantage (Vorhies and Harker 2000). Ittner and Larcker
(1997) argue that the impact o f cycle time (process efficiency) on performance is moderated by product
quality, whereas none of these two factors have a significant direct effect on competitive advantage
independently. Their empirical data suggest that the interaction between quality and cycle time is related
to return on sales (p. 20). Wheelwright and Clark (1992) and Boynton (1993) also argue that higher
performance requires not only fast and efficient NPD, but also products that meet market demands.

2.2.1 NPD Performance and Firm Profitability


The proposed combination o f process efficiency and product effectiveness are linked to overall
firm rent generation and profitability (McGrath, Tsai, Venkatraman, & MacMillan, 1996; Verona, 1999).
Foster and his colleagues (Foster, Linden, & Whiteley, 1985; Foster, Linden, Whiteley, & Kantrow,
1985) delineated this critical relationship arguing that R&D performance leads to organizational
profitability. This is also supported by AMR Research that argues that superior product performance,
price, and timing are key factors in determining market share, margins, and shareholder value.

3. Resource Reconfigurability and Competitive Advantage


Dynamic capabilities enable organizations to leverage their resource base to capture new
strategic opportunities and compete in changing markets with improved functional competencies. The
ability to access and integrate knowledge resources is truly a source of competitive advantage (Tsai,

6 The proposed notion of competitive advantage also applies to interorganizational NPD partnerships, not just to a
single firms performance. Even if the product may be co-developed, the product can be marketed by a single firm or
by a collaborative partnership. It is beyond the scope of this study to examine how the product profits are distributed
across partners, which are usually influenced by bargaining positions or prior contracts.

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2001). It is undeniably difficult to build new functional com petencies that consistently align with constant
changes in the business environment. Resource reconfigurability is proposed as a modest means for
developing new com petencies that satisfactorily match environmental changes.

Resource reconfigurability captures the ability to cost effectively replace less valuable
combinations of functional competencies, and architect more promising configurations with greater value
potential by following emerging market opportunities. After all, innovation is often the reconfiguration of
existing resources (Schumpeter, 1934). Hargadon and Sutton (1997) stress the importance of managing
diverse knowledge resources as the basis for innovation. Although resource reconfigurability involves the
integration and innovative recombination of resources, it is necessary to clarify that resources cannot be
integrated directly to build competencies (Grant 1995). Following the knowledge-based view, resource
reconfigurability consists of dynamic interactions of knowledge resources where knowledge is combined
and transformed into knowledge-based functional competencies (Kusunoki et al. 1998).
Hence, effective resource reconfiguration could result in a competitive advantage by adjusting
existing resources into new competencies that better align with environmental contingencies. Applied to
NPD, resource reconfigurability influences competitive advantage by continually enhancing functional
NPD competencies that build superior new products. Empirical evidence from the pharmaceutical
industry shows that dynamic capabilities are important sources of competitive advantage in NPD
processes (Henderson & Clark, 1990; Henderson & Cockbum, 1994).

3.1 Resource Reconfigurability and Core Rigidities


When failing to meet environmental demands because o f inappropriate functional competencies,
small inconsistencies may gradually lead to larger failures, which are referred to as core rigidities
(Leonard-Barton, 1992). Organizations may lose the ability to innovate their knowledge resources if they
fall into three traps - familiarity, maturity, and propinquity (Ahuja & Lampert, 2001; Zahra & George,
2002a). First, familiarity deals with overemphasizing existing knowledge and preventing new knowledge
acquisition and creation. Second, maturity results from the need for predictability; third, propinquity
(nearness) causes organizations to concentrate on areas very close to their expertise and avoid

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innovations. Resource reconfigurability helps NPD work units avoid these traps by enabling effective
reconfiguration of existing, potentially rigid resources. Resource reconfigurability supports a virtuous
cycle of resource improvement by introducing new innovative resource configurations (McGrath, 2001),
avoiding core rigidities (D'Adderio, 2001), and escaping competency traps (March, 1991).
According to Schumpeter (1934), innovation, or the creative destruction of existing resources is
the most important source of competitive advantage. Continuous change is intimately related to achieving
constant innovation (Brown & Eisenhardt, 1997). Leonard-Barton (1992) argues that competition is based
primarily on incremental innovation that gradually develops new competencies. Wheeler (2002) also
views dynamic capabilities as the ability to create resource configurations that provide the opportunity for
value creation. Applied to NPD, Dougherty (1990; 1992) argues that successful products are the result of
NPD groups combining their perspectives in a highly interactive, iterative, and innovative fashion.

3.2 Competitive Potential of Resource Reconfigurability


Dynamic capabilities are heterogeneously distributed across organizations (Galunic &
Eisenhardt, 2001). Factor markets are not available for purchasing dynamic capabilities (Teece et al.,
1997), whose replication is difficult and costly, even within a single firm since work units often differ in
their ability to manage their resources. For example, Lippman and Rumelt (1992) argue that some sources
of competitive advantage are so complex that the organization itself might be difficult to understand and
replicate in other areas. As a dynamic capability, resource reconfigurability is hard to understand,
describe, and thus replicate. A rare and complex process that recurrently manages a blend of knowledge
resources is arguable hard to imitate (Henderson, 1994). This makes resource reconfigurability difficult to
perceive, substitute, and imitate because of causal ambiguity (Barney, 1991; Lippman & Rumelt, 1982).
Moreover, resource reconfigurability is not very vulnerable to substitution because of its complexity that
is hard to describe, explain, or transfer. In sum, the idiosyncratic nature of resource reconfigurability and
its underlying factors, its overall complexity, and evolutionary way it develops, make it difficult to
replicate, and thus fundamental source of sustainable competitive advantage. Therefore, resource
reconfigurability has the basic properties to qualify for a source of competitive advantage.

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Resource reconfigurability is proposed to provide the strategic flexibility to match changing


environmental conditions toward a competitive advantage (Helfat & Raubitschek, 2000). Following
Teece et al. (1997), resource reconfigurability creates effective configurations of functional competencies
that align with environmental contingencies. In doing so, it prevents core rigidities while ensuring that
current functional competencies are appropriate for given environment at any point in time. By ensuring
aligned functional competencies, resource reconfigurability can be the basis for competitive advantage.
Applied to an NPD context, Iansiti and Clark (1994) argue that product quality and lead time are
linked to the ability to merge new with accumulated knowledge. Resource reconfigurability facilitates the
deployment of necessary resources to efficiently and effectively undertake NPD processes through more
improved functional competencies. As NPD work units gain experience over time and undertake their
transformation routines more effectively, resource reconfiguration becomes less costly and more effective
thus facilitating NPD processes that better match environmental contingencies, resulting in innovative
products of higher quality (Slater & Narver, 1994). According to Prahalad and Hamel (1990), such
capability can make a disproportionate contribution to customer value (increasing revenues), create
substantial process efficiencies (reducing costs), and provide the basis for new opportunities or entering
new markets (creating innovation). Resource reconfigurability systematizes the creative process and thus
shifts the traditional efficiency/flexibility trade-off to attain both superior efficiency and superior
effectiveness, and thus better and cheaper products.

H2: Resource reconfigurability positively influences competitive advantage in NPD.

4. Resource Reconfigurability and Strategy -Environment Alignment


Similar to the resource-based view (Priem & Butler, 2001), the dynamic capabilities perspective
has been criticized as being tautologically linked to competitive advantage. Despite the hypothesized
direct impact of resource reconfigurability on competitive advantage, the true value of dynamic
capabilities lies in the new configurations of functional competencies they create, not their direct effect
on performance (Eisenhardt & Martin, 2000). Dynamic capabilities are intermediate processes (Amit &
Schoemaker, 1993) that provide enhanced productivity of existing resources, which, at any given time,

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create favorable configurations of functional competencies that directly influence competitive advantage
(Kusunoki et al., 1998; Makadok, 2001). Such favorable configurations are conceptualized following the
theory on strategy-environment alignment (Venkatraman, 1989; Venkatraman & Prescott, 1990).

4.1 Strategy-Environment Alignment


The conceptual underpinnings of the strategy-environment alignment are rooted in the
information processing view (Galbraith, 1977; March & Simon, 1958; Tushman & Nadler, 1978). The
basic argument suggests that the information processing competencies must match the information
processing demands that the environment imposes (Allen, 1984; Nadler & Tushman, 1988). This view
has been applied to NPD (Clark & Fujimoto, 1991), and extended to interorganizational relationships
(Bensaou & Venkatraman, 1995).

4.1.1 What is Alignment?


Alignment or fit is conceptualized as the degree of favorable contingency among relevant
factors (Venkatraman, 1989). The basic contingency view suggests that there is no one best profile of
any given factor, but the optimal configuration depends on other relevant factors. The alignment
perspective has been widely adopted in the strategy, organization theory, and IS literatures to define
optimal configurations among related variables. This perspective allows researchers to specify an ideal
profile and maintain that adherence to that profile has a systematic effect on performance (Venkatraman,
1989). The proposed strategy-environment alignment (Venkatraman, 1989) is defined as an effective
configuration between functional competencies (strategy) and environmental turbulence (environment).
The positive performance impact of strategy-environment alignment is an important proposition in
strategic management (Doty et al., 1993; Venkatraman & Prescott, 1990).

4.2 Strategy- Environment Alignment in NPD


Following the resource-based view, functional competencies directly affect the performance
(Henderson & Cockbum, 1994; Iansiti & Clark, 1994; Leonard-Barton, 1995). While functional
competencies are expected to have a direct effect on performance (Leonard-Barton, 1992), several

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researchers have questioned such straightforward effect, arguing for contingent effects that may result in
rigidities (Leonard-Barton, 1992; Moorman & Slotegraaf, 1999). This study applies the notion of
strategy-environment alignment, arguing that a favorable configuration of functional competencies with
external contingencies (environmental turbulence) is likely to result in differential performance
outcomes.7 Applied to NPD, the proposed configuration between functional NPD competencies with
environmental turbulence is shown in Figure 3. Strategy-environment alignment in NPD is proposed to
partially mediate the impact of resource reconfigurability on competitive advantage, as explained below.

Figure 3. Environm ent S trategy Alignm ent in NPD


Resource
Reconfigurability

Customer
Competence

Technological
Turbulence
Strategy
Environment
ALIGNMENT
Market
Turbulence
ENVIRONMENTAL
TURBULENCE

Technical
Competence
Managerial
Competence

Competitive
Advantage

NPD FUNCTIONAL
COMPETENCE

4.2.1 Cross-Functional NPD Competence


NPD competence is the ability to develop superior new products rapidly and effectively. NPD
competence is a harmonized cross-functional application of several functional competencies, drawing
upon broad expertise in critical functions and integrated problem solving (Wheelwright & Clark, 1992).

7 Even if organizations may also change their own environment, this study focuses on matching environmental
conditions by adapting internal functional competencies, rather than influencing the environment.

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Following Danneels (2002), Griffin and Hauser (1996), and Moorman and Slotegraaf (1999), the three
most important functional competencies in NPD are customer, technical, and managerial competencies.8
(Day, 1994) describes three types of organizational competencies - inside out, outside in, and
spanning. Inside out are competencies that are activated by customer requirements, competitive
challenges, and external opportunities. A prominent example of inside out ability in NPD is customer
competence. Outside in abilities are those that connect superior internal competencies to the external
environment. A prominent example of outside in ability in NPD is technical competence. Spanning
competence integrates inside-out and outside-in competencies. A prominent example in NPD is
managerial competence that integrates complex activities, such as marketing and technical. In sum, NPD
cross-functional competence is captured by three functional competencies, namely customer, technical,
and managerial competencies, as described below:

4.2.1.1 Customer Competence


NPD is the process of transforming customer needs into an economically viable product that
satisfies those needs (Joglekar, Yassine, Eppinger, & Whitney, 2001). Basic activities include
determining customer characteristics, appraising competitive products, and executing customer-driven
programs. Customer competence also includes proficiency in distribution, sales, and communication
channels, reputation, and brand name (Danneels, 2000; Fowler et al., 2000). Customer competence is
distinct from market orientation, which reflects a dynamic capability in market sensing (Day, 1994).

4.2.1.2 Technical Competence


Technical competence includes abilities in basic research, R&D, product engineering, design,
manufacturing, and quality assurance (Danneels, 2000). Technical competence enables work units to use
k n ow led g e about the p h y sica l w orld into product d esign s and p h ysical products (F ow ler et al., 2 0 0 0 ).

8 Customer competence has been generally termed marketing competence. However, since marketing competence is
a broader term, encompassing screening, use, and dissemination of market information (Day, 1994). I thus follow
Danneels (2002) to use the term customer competence to emphasize the customer. The use of customer competence
also aims to avoid confusion with market orientation. Market orientation is viewed as a dynamic capability that can
shape customer competence.

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Examples of technical competence include solving technical problems, evaluating a products technical
feasibility, assuring that product performance is consistent with specifications, and executing and testing
prototypes. Technical competence assures that the necessary technical features are effectively
implemented, while no useless effort is exerted for the development of product features that are beyond
current technological capacity.

4.2.13 Managerial Competence


Managerial competencies primarily include operational abilities in organizing cross-functional
groups and facilitating their activities. Managerial competence is a spanning competence that aims to
combine, integrate, and exploit technical (inside out) and customer (outside in) capabilities (Iansiti &
Clark, 1994). Managerial competence has the general role of bringing different skills in place and
avoiding cross-functional integration problems. Pisano (1996) stresses the role of this competence
through management decisions and actions, which enable work units to integrate technical and customer
competencies and influence the speed and success of NPD. For example, technical people that do not
recognize customer information and do not interrelate their activities in response to critical design
features that are likely to cause product delays (Leonard-Barton, 1995).
Examples of managerial competencies are monitoring progress, getting involved with activities
at the working level, and administering tasks and functions. Managerial competence can also promote
group achievements, regulate expectations, and secure valuable information (Ancona & Caldwell, 1992).
Managerial competence also includes leadership and strategic direction (Maccoby 1999). Other examples
of managerial competencies include the design of incentives for sharing information across functional
boundaries, ensuring that complementary resources are utilized, and conflicts are effectively managed.

4.2.1.4 Nature of NPD Competence Construct


Central to the NPD process is the integration o f technical, customer, and managerial knowledge
and functions (Burgelman, 1991; Calantone, Di Benedetto, & Devine, 1993; Dougherty, 1992; Mitchell,
1992; Moorman & Slotegraaf, 1999; Rosenbloom, 1985). Successful new products are created by
integrating technological and customer competencies (Danneels, 2000), effectively translating customer

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needs into feasible ideas to achieve a balance between what is technically feasible and what is acceptable
to the customers (Clark & Fujimoto, 1991; Menon, Jaworski, & Kohli, 1997). Successful integration of
customer, technical, and managerial competencies ensures that the product has the correct mix of desired
features and it is developed effectively and efficiently. The proposed cross-functional NPD competence
focuses on the value of complementary competencies, aiming to avoid excessive focus on individual
functions (e.g. customer Vs technical).
Grant (1995) describes NPD competence as a cross-functional competence in his hierarchy of
organizational abilities. From a knowledge-based view, Leonard-Barton (1992) views the NPD
competence as an interrelated, interdependent knowledge system. Following these theorists, NPD
competence is proposed to be a higher-order formative construct comprising o f customer, technical, and
managerial competencies. A formative conceptualization suggests that each functional competence adds
to the overall NPD competence, while allowing for developing a superior competence in one function
(e.g., customer) without inevitably influencing other functions (e.g., technical).

4.2.2 Environmental Turbulence in NPD


The concept of environmental turbulence has long been used to study the environments effect
on business processes (Johnston & Carrico, 1988; Lawrence & Lorsch, 1967; Thompson, 1967).
Environmental turbulence as a critical contingency draws from Bensaou and Venkatraman (1995), and it
is supported by the resource-based view, organization theory, and transaction cost analysis (p. 1473). The
resource-based view maintains that the environment plays a role on the choice and success of
organizational resources (Penrose, 1959). Organization theory, and specifically the information
processing view (Daft & Weick, 1984; March & Simon, 1958; Thompson, 1967) highlights turbulence or
uncertainty as a critical aspect of organizational design. Transaction cost analysis (Coase, 1937;
Williamson, 1985) also views environmental uncertainty as a critical factor.
Environmental turbulence captures the extent to which the environment is constantly changing,
and these changes cannot be easily forecasted. Environmental turbulence is herein defined as the general

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external conditions of uncertainty. Applied in NPD, it is proposed to be described by at least two types of
turbulence, namely market and technological, which are described below.

4.2.2.1 Market Turbulence


Market turbulence describes the unpredictability of environmental demands and marketing
practices (Jap, 1999). It also describes changes in competitor strategies, new product introductions, and
changes in consumer needs that are difficult to predict. Market turbulence also relates to environmental
dynamism that refers to the extent to which the market supports growth (Bensaou & Venkatraman, 1995).

4.2.2.2 Technological Turbulence


Technological turbulence or unpredictability (Bensaou, 1997) refers to the inability to accurately
forecast new technological requirements because of rapid changes in the underlying technology (p. 110).
Technological turbulence arises from technological breakthroughs that create new opportunities.

4.2.2.3 Nature of Environmental Turbulence


Environmental turbulence arises because of general environmental conditions. Environmental
turbulence is modeled as a formative higher-order factor, driven by the two proposed sources of
turbulence. This view is suggested by the fact that turbulent environments are likely to be unstable in
these two dimension dimensions; however, it does not necessarily assume that overall turbulence will
equally affect all dimensions, but each dimension can contribute to increasing environmental turbulence.

4.2.3.4 Nature of Strategy-environment Alignment


Alignment is formally specified as an unobservable theoretical construct at a higher plane than
the individual dimensions (e.g., functional competencies and turbulence). Strategy-environment
alignment in NPD aims to describe positive organizational adaptation of NPD competencies relative to
environmental turbulence (Lewin and Volberda 1999). Following Venkatraman (1989), there are no
directly observable indicators for alignment since its meaning is derived through directly operationalizing

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the corresponding first-order variables, namely the three functional NPD competencies and the two
dimensions of environmental turbulence.
The alignment view would call for matching environmental turbulence with functional
competencies.9 Turbulence or uncertainty can be viewed as the difference between the knowledge needed
to successfully undertake a task and the knowledge available. Following the information processing view
(Galbraith, 1977; Tushman & Nadler, 1978), uncertainties in the environment create significant
turbulence. Hence, environmental turbulence increases the amount of information processing needs
(Bensaou & Venkatraman, 1995). In pursuit of alignment, organizations shape their information
processing competencies (Daft & Weick, 1984; Tushman & Nadler, 1978; Van de Ven et al., 1976). In
fact, competencies are essential to deal with the turbulence of unstable environments (Sabherwal, 1999).
This follows Koza and Lewin (1998) who argue that functional competencies need to co-evolve with the
competitive environment. Grant (1988) also prescribes that organizations must choose initiatives that
match their competencies with external opportunities. Similarly, Maznevski and Chudoba (2000) argue
for a fit between a teams competencies with the tasks complexity.
According to Venkatraman (1989), alignment must be specified among the most important
underlying dimensions (p. 436). Applied to NPD, depending on the environment in which each NPD
group operates,10 it must shape its competencies to achieve the requisite fit. For example, the amount and
type of technical knowledge exchanged depends on the degree of technological turbulence (Sobrero &
Roberts, 2001). The greater the diversity o f technical inputs needed for a project, the higher the technical
competencies needed to integrate them (Gulati & Singh, 1998). Managerial integration efforts among
marketing and technical functions reduce market information and technical uncertainty and facilitate
effective product launch (Ettlie, 1997). Managerial competence must emerge to manage novel activities,
frequent exceptions, and unanticipated events in the environment.

9 It is important to reiterate that both dimensions of alignment can be shaped to optimize alignment. However, since it
is arguably easier to shape functional competencies than shape the environment, this study focuses on the former.
10 It is important to note that even within the same organization, different NPD work units may face different types of
environmental turbulence. For example, depending on the technology required for a certain product, there might be
different degrees of technological turbulence.

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On the other hand, misalignments include lack of technical knowledge to meet market demands
or lack of sophisticated consumers for a technical feature (Garud & Nayyar, 1994). While technological
developments give the opportunity to improve technical competencies, organizations often fail to exploit
these opportunities by not capitalizing on new technological breakthroughs (Kusunoki, 1997), and
existing technical competencies essentially become rigidities. Therefore, depending on the degree and
type of environmental turbulence each NPD work unit faces, their functional competences must be
accordingly shaped for optimum alignment.

4.3 Strategy- Environment Alignment and Competitive Advantage


New products can be viewed as the result of various combinations of NPD (customer, technical,
and managerial) competencies (Danneels, 2000; Dougherty, 1992). While NPD competencies are
proposed to positively influence performance, their effectiveness depends on the circumstances under
which they are used (Becerra-Femandez & Sabherwal, 2001). Any particular configuration of functional
competencies performs as a portfolio of options that can be used to support product-market combinations
(De Boer et al., 1999). This view recognizes that functional competencies may not have a straightforward
relationship with performance (Moorman & Slotegraaf, 1999). For example, effective technical
competencies may produce new products quickly; yet, these products may not be well adapted to
consumer needs (Brown & Eisenhardt, 1997). Strategy-environment alignment would then suggest that
there is no definite path to success since multiple configurations can be equally successful. In other
words, the alignment perspective would argue that there is no optimal configuration of functional NPD
competencies, but their effect would depend on environmental contingencies.
The positive impact of strategy-environment alignment on performance is primarily supported
by the information processing view (Doty et al., 1993), applied to the NPD context (Clark & Fujimoto,
1991). The theory maintains that information processing needs and competencies must be aligned for
optimum performance (Brown & Eisenhardt, 1995). At the heart of the organization theory perspective,
alignment in NPD is a critical success factor (Krishnan & Ulrich, 2001). Cockbum and Henderson (1998)
and Tushman (1979) also stress the role of the environment, arguing that the key to enhanced

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performance lies in the ability to match internal competencies with environmental cues. Strategyenvironment alignment suggests that competencies are targeted on critical areas, addressing both the issue
of (a) doing the right things (effectiveness), and (b) doing things right (efficiency).
An ideal configuration o f competencies with external contingencies is proposed as a distinctive
higher-order competence (Teece et al., 1997), which is likely to influence competitive advantage. The
authors argue that value creation largely depends on honing technical, organizational, and managerial
processes and matching them with environmental contingencies. This is consistent with Porters (1996)
conceptualization that effectiveness in a given environment is likely to be achieved by pursuing strategies
that match contextual requirements. Work units with NPD competencies aligned with environmental
contingencies are likely to consistently design products that can meet customer needs, meet internal
company goals and hurdles, and outperform competing products.
On the other hand, deviations from this profile, or misalignments, will be negatively associated
to performance (Venkatraman, 1989). The negative role of misalignment on competitive advantage rests
on time compression diseconomies, since functional competencies require costly accumulation over
time through coordination, learning, experience, and collective skills (Stock et al., 2001). Building
functional competencies is costly and often irreversible. For example, training a well-organized team of
skilled engineers requires time and effort. Hence, unless competencies are fully exploited, they can result
in a competitive disadvantage. For example, non-challenging NPD projects may often consume personnel
with high competencies that could be used to build other products. Leonard-Barton (1992) proposed the
term rigidities to describe how effective competencies can transform into liabilities and actively create
problems if they (a) do not adapt to the environment, or (b) they are not properly utilized. Examples of
such misalignments are outdated skills, dominance of inappropriate or costly resources, and lack of
requisite knowledge. Empirical evidence suggests that deviations from the strategy-environment
alignment has negative implications (Venkatraman & Prescott, 1990). In sum, alignment or misalignment
is a matter of degree; the closer functional competencies match environmental contingencies, the higher
the performance will be (Leonard-Barton, 1992), suggesting that:

H3a: Strategy-environment alignment positively influences competitive advantage in NPD.

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4.4 Resource Reconfigurability and Strategy-environment Alignment


The dynamic capabilities perspective explicitly supports the proposed mediating role of strategyenvironment alignment by arguing that dynamic capabilities help shape functional competencies to
address environmental changes (Teece et al., 1997). The alignment view is thus consistent with the
dynamic capabilities perspective in the sense that existing organizational resources are continuously
reconfigured to yield new functional competencies that better match the external environment. Simply
put, resource reconfigurability creates preferential resource allocations to promising market opportunities,
while allowing some less promising opportunities to expire (Leonard-Barton, 1992; Moorman &
Slotegraaf, 1999). Applied to NPD, business strategy can be represented as a struggle for effective
allocation of a finite set of resources to address multiple potential opportunities for new products.
Resource reconfigurability essentially aims to improve the technical fit between functional
competencies and environmental contingencies to achieve superior process efficiency and product
effectiveness. The ability to quickly respond to changing environments and properly reconfigure
resources engenders effective new competencies (Lorenzoni & Lipparini, 1999).
Resource reconfigurability paves the way for effective organizational change by highlighting
and avoiding rigidities and shaping new competencies. It thus helps continually spawn new products by
allocating resources to the most promising areas. NPD work units that are slow in matching their
competencies with changing environmental contingencies would inevitably end up with rigidities
(Leonard-Barton, 1992). Resource reconfigurability shapes effective configurations of resources to
sustain aligned NPD competencies and prevent core rigidities as the environment changes.
It is important to reiterate that it is unlikely for any organization to develop a magic formula
for persistent success by consistently shaping its functional competencies to perfectly align with the rapid
changes of the business environment. More important, there is no definite path to success since resource
reconfigurability can pave multiple successful configurations. Nonetheless, dynamic capabilities can be
used in different ways to speed up the adaptation process to environmental changes (Boynton, 1993;
Prahalad & Hamel, 1990). Rather than prescribing individual configurations through success stories,

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resource reconfigurability is modestly proposed as a generalizable means to achieve effective


configurations o f functional competencies that align with environmental contingencies.

H3b: Resource reconfigurability positively influences strategy-environment alignment.

By proposing a direct relationship between resource reconfigurability and strategy-environment


alignment, its value potential is hypothesized independent of competitive advantage. However, it is
important to reiterate that aligned configurations can be viewed as snapshots at any given point in time.
Environmental turbulence makes it difficult to predict which competencies will be important in the future,
making it necessary to continuously shape functional competencies over time (Fowler et al., 2000; Garud
& Nayyar, 1994). According to the dynamic capabilities view, alignment over time implies that NPD
work units shape their functional competencies to match environmental contingencies. The main potential
of resource reconfigurability is long-term competitive advantage through building fresh competitive
positions (alignments over time), whose goal is a series of temporary competitive advantages using the
strategic logic of change (Karim & Mitchell, 2000). In the end, long-term competitive advantage lies in a
stream of successful new products, not any single initiative (Rosenthal, 1992).

5. IT-Enabled Dynamic Capabilities


As organizations shape their functional competencies, they can also develop their dynamic
capabilities (Danneels, 2002). Having described the construct of resource reconfigurability, it is important
to describe how it can be developed. This section extends the notion of IT competence in NPD and
proposes it as a key antecedent of resource reconfigurability.
A growing body of literature suggests that IT can have a dramatic effect on the way
organizations and interorganizational relationships can be coordinated, enhanced, and managed (Cash &
Konsynski, 1985; Ching et al., 1996; Clemons & Row, 1992; Porter & Millar, 1985). There is also
evidence on the role of IT on improving business processes (Bakos & Treacy, 1986; Ives & Learmonth,
1984; Rockart & Scott Morton, 1984; Sambamurthy, 2000), such as competitive pricing (Beath & Ives,
1986) and customer relationship management (Ives & Learmonth, 1984). There is a recent emphasis on

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the strategic potential o f IT to transform organizations (Agarwal & Sambamurthy, 2002; Bharadwaj,
2000; Bharadwaj, Bharadwaj et al., 1999; Harris & Katz, 1991; Johnston & Carrico, 1988; Mata et al.,
1995; Porter & Millar, 1985; Venkatraman & Henderson, 1998, 1999; Venkatraman, Henderson, &
Oldach, 1993). For example, Sambamurthy et al. (2003) argue that IT serves as the enabling platform on
which dynamic processes can be built. IT changes how firms compete, and it also facilitates a competitive
advantage (McFarlan, 1984; Porter & Millar, 1985). I first describe the proposed construct of IT
competence in an NPD context, and then describe how it influences resource reconfigurability.

5.1 IT Competence
Research on the strategic role of IT has mainly drawn upon the resource-based view (Andersen
& Segars, 2001; Bharadwaj, 2000; Bharadwaj, Bharadwaj et al., 1999; Mata et al., 1995; Ross, Vitale, &
Beath, 1996). This view argues that IT resources, in combination with other organizational resources can
influence competitive advantage. The notion of IT Competence has been conceptualized by several IS
researchers to denote superior management and use of IT functionality. For example, Bharadwaj (2000)
developed the concept of IT competence as a distinct organizational capacity and showed its positive
effect on firm performance. Santhanam and Hartono (2003) confirmed this finding. Sambamurthy and
Zmud (2000) describe IT competence as the value-added contributions o f IT assets. Sambamurthy et al.
(2003) propose the notion of IT leverage, the organizational base of IT resources that identifies strategic
initiatives. IT competence has also been described as the extent to which technologies needed for
manipulation, storage, and communication of information are available (Sabherwal, 1999; Sabherwal &
Kirs, 1994; Wiseman, 1988).
IT competence has been described as the ability to effectively manage IT functionality (Wheeler,
2002), utilize IT skills (Feeny & Willcocks, 1998), build an IT infrastructure platform (Bharadwaj,
Sambamurthy, & Zmud, 2002; Ross et al., 1996), and take advantage of IT to create business value
(Sambamurthy & Zmud, 2000). IT competence is necessary for deploying and leveraging the technology
base of IT resources and functionalities to support business processes (Dewett & Jones, 2001; Henderson
& Venkatraman, 1993). IT competence is not a specific set of IT functionality, but the ability to leverage

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IT using tacit human knowledge (Amit & Schoemaker, 1993; Mowery et al., 1996; Nonaka, 1994;
Verona, 1999). For example, IT functionalities may differ in terms of the extent they are fully utilized by
their users (Agarwal, 2000). This is consistent with Bharadwaj (2000) who argues that additional
resources are required in combination with IT resources to form IT competence. This corresponds to
Keen (1993) argument that IT management makes a difference, not merely a technological advantage. In
sum, IT competence encompasses the effective use of IT functionalities, not merely their existence. In
fact, some organizations are more effective than others in effectively utilizing IT (Segars & Dean, 2000).
Drawing upon the resource-based view, an important distinction is the difference between IT
investments and IT competence. IT resources have been proposed as a useful proxy for IT investments;
however, they do not necessarily reflect superior IT competence (Barua et al., 1995). According to Barua
and Mukhopadhyay (2000), the impact of IT investments is best understood when examining ITdependent processes. Nonetheless, an obvious antecedent of IT competence is the degree of IT
investments (Sambamurthy et al., 2003).
IT investments are unlikely to single-handedly serve as a source of competitive advantage since
basic IT resources are available to all firms (Carr, 2003), creating the strategic necessity hypothesis
(Clemons, 1991). Basic IT resources can be easily duplicated by competitors, making them unlikely
sources of competitive advantage (Mata et al., 1995). In order to leverage IT investments, firms must
integrate their IT resources with their skills to build IT competencies (Clemons, 1986, 1991). While IT
resources may be similar across organizations, IT competence tends to be heterogeneously distributed
(Bharadwaj, 2000; Clemons, 1986, 1991). They thus reflect the ability to assemble, integrate, and deploy
IT resources in unique ways (Amit & Schoemaker, 1993; Russo & Fouts, 1997). In sum, IT competence
reflects the ability to leverage IT investments in value-adding ways (Bharadwaj, 2000; Bharadwaj,
Sambamurthy, & Zmud, 1999; Lawler, 1996; Ross et al., 1996).
Following Bharadwaj (2000) and Sambamurthy et al. (2003), IT competence is defined as the
ability to acquire, deploy, and leverage IT functionality in combination with other resources to support
business processes in value adding ways. This definition is consistent with the view of IT competence as
the ability to effectively use IT to shape business strategy (Feeny & Willcocks, 1998; Ross et al., 1996).

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However, the difference proposed in this study deals with the systemic nature of IT competence. This
view describes the ability o f specific groups (such as NPD work units), which is likely to differ from
firmwide IT competence (Bharadwaj et al., 2002). This corresponds to Leonard-Barton (1992) who
proposes a focus on placing groups under a magnifying lens to examine their strategic potential (p. 122).

5.1.1 Interorganizational IT Competence


IT competence is not simply a firm-specific variable. IT has long been viewed as an enabler of
inter-firm processes (Cash & Konsynski, 1985; Johnston & Vitale, 1988). Johnston and Vitale (1988)
proposed the term Inter-organizational Information Systems a special type of IT that have the capacity
to span across organizational boundaries and allow information flows across the supply chain
(Konsynski, 1993). IT allows organizations to work together in real time as an extended enterprise by
enhancing information sharing across geographical, and time barriers to support business processes
(Kettinger et al., 1994). Perhaps the most important benefit from IT is its competence to bring dispersed
teams together electronically and allow them to work together asynchronously (across time zones) and
geographically (across remote locations) more easily and cost-effectively than ever before (Rockart &
Short, 1989). In fact, Sambamurthy et al. (2003) proposed the term external IT partnerships to describe
the role of IT in forging and enhancing interfirm partnerships.
There is increased evidence that firms leverage IT to facilitate collaborative relationships (Grant
& Baden-Fuller, 1995; Sambamurthy & Zmud, 2000). Internet-based IT is revolutionizing
interorganizational relationships (Krishnan & Ulrich, 2001; Ross et al., 1996). IT enables inter-firm
collaboration even in traditional intra-organizational areas, such as NPD (Hausler, Hohn, & Lutz, 1994;
Primo & Amundson, 2002; Sobrero & Roberts, 2001). Since NPD work units commonly comprise of
dispersed inter-departmental or inter-organizational teams, the supporting role of IT is prominent.
Wind and Mahajan (1997) argue that Internet linked NPD sites is one of the key elements of
successful NPD projects. There is evidence of the effective role of Internet-based tools on inter-firm
NPD, such as virtual prototyping (Dahan & Srinivasan, 2000), and virtual design (Songini, 2002). The
advent of Internet-based IT and its benefits to support interorganizational relationships are increasingly

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gaining greater attention (Bensaou, 1997; Edwards, 2000; Liberatore & Stylianou, 1995). In the business
press, Internet-based IT resources have been widely touted as the most important use of the Internet for
NPD, allowing organizations to collaboratively develop products and innovations at remarkable speed
and efficiency (AberdeenGroup, 1999).

5.2 IT Competence in NPD


Contemporary conceptualizations of IT management (Moschella, 1997; Sambamurthy, 2000)
view IT as a seamless integration of IT functionalities and solutions from multiple sources, as opposed to
a monolithic structure. Ross et al. (1996) argue that organizations must develop their IT competencies
along multiple dimensions. This is consistent with Feeny and Willcocks (1998) who view nine IT
functionalities as fundamental for business success. Bharadwaj and her colleagues (2000,2002) also view
firmwide IT competence as a second-order factor comprising of a set of first-order IT competencies.
Given that IT competence has generally been viewed as a multidimensional construct
(Bharadwaj et al., 2002; Nambisan, 2003; Sabherwal, 1999), IT competence in NPD is proposed to be a
complex combination of several underlying competencies, as shown in Figure 4. Drawing upon a review
of commercial IT functionalities in NPD and the NPD literature (Nambisan, 2003; Ramesh & Tiwana,
1999; Rangaswamy & Lilien, 1997; Tiwana & Ramesh, 2001), I propose a three dimensional of IT
competence in NPD; (a) effective use of project and resource management systems (PRMS), (b) effective
use of knowledge management systems (KMS), and (c) effective use of cooperative work systems
(CWS). This view is consistent with Lind and Zmud (1995) who argue that specific IT functionality must
map to specific use in organizational processes. It is important to clarify that the proposed IT dimensions
may not exhaust the domain of IT competence in NPD, but they are merely posited as a representative,
yet not comprehensive set of factors. As Nambisan (2003) points out, specific IT systems may overlap
these three dimensions. In fact, this overlap adds to the existence o f the proposed common overarching IT
competence factor (p. 7). However, for expository purposes it possible to identify and categorize basic IT
functionalities along the proposed three dimensions.

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Figure 4. IT C om petence in New P roduct D evelopm ent

R esource
R econfigurability

IT Competence
in NPD

Project/Resource
Management
Systems

Knowledge
Management
Systems

Cooperative
Work
Systems

5.2.1 Effective Use of Project/Resource Management Systems (PRMS)


PRMS are commonly referred to as the IT functionality used for the management o f NPD
projects, and they correspond to Nambisans (2003) process and project management systems. As
Nambisan and McGrath and Iansiti (1998) mention, new IT-based systems integrate project management
with process management into a single interface. PRMS aim to increase coordination by enabling
managers to manage NPD projects that require extensive interaction among dispersed units. NPD work
units typically use a variety of PRMS, including scheduling, allocation of resources (specifying the time
to be spent on specific tasks), and aligning the pace of effort among members (McGrath, 1991). PRMS
not only supports project managers, but also all project team members. Following Nambisan, Pinto
(2002), and Rangaswamy and Lilien (1997), the effective use of PRMS can be categorized across three
dimensions - (i) scheduling and time management, (ii) resource management, and (iii) task assignment.
First, effective use of scheduling and time management systems enables sharing real-time
information on project status, avoiding task duplication, monitoring quality and on-time delivery,
integrating dispersed project information, and ensuring individual and group performance. Effective use
of these systems can also evaluate quality, on-time deliveries, performance attributes, and quickly access
information (Rockart & Short, 1989). Second, effective use of resource management systems deals with
managing shared resource dependencies, breaking down an NPD project into smaller tasks, and assigning

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resources to manage the overall project. Effective use o f these systems makes it easier to gather
information about available resources and decide the best match between a resource and a task (Crowston
1997). Finally, effective use o f task assignment systems links project deliverables to tasks by gathering
information about available resources and deciding which ones to use for different tasks. It facilitates
coordination and information categorization systems for better managing people skills and resources.

5.2.2 Effective Use of Knowledge Management Systems (KMS)


Knowledge management is broadly described as the set of activities associated with the
generation, codification, sharing, and utilization of knowledge within and across organizations. IT-based
systems for support organizational knowledge management processes by facilitating knowledge
acquisition, assimilation, transformation, and utilization (Alavi, 2000; Alavi & Tiwana, 2002). Following
Alavi and Leidner (2001), the effective use of KMS spans three dimensions: (a) coding and sharing o f
knowledge, (b) creation o f knowledge directories, and (c) creation o f knowledge networks. This
conceptualization of KMS is consistent with Holzner and Marx (1979) and Zahra and George (2002a).
First, effective use of KMS facilitates the process of coding knowledge into semantic memory
and improving linkages. It also enhances sharing, assimilation, and codification of knowledge by
facilitating the capture, updating, and accessibility of organizational directives and best practices, and
automating organizational routines (Alavi & Leidner, 2001). Effective use of visualization technologies
can handle different types of information, such as data standards and databases. Second, effective use of
data warehousing systems can also disseminate information and hold it in databases and directories for
easy future access (Cespedes, 1993; Purvis, Sambamurthy, & Zmud, 2001). Finally, there is evidence that
effective use of KMS enables the creation of knowledge networks and knowledge management strategies
(Venkatraman & Henderson, 1998), and electronic communication forums (Levina, 1999).

5.2.3 Effective Use of Cooperative Work Systems (CWS)


Computer-Supported CWS or groupware are practical instances of computer aids designed to
support collaborative teamwork. While there is a long history of CWS (Licklider & Taylor, 1968;
Nunamaker, Dennis, & Valacich, 1991), Internet-based groupware are becoming the most prominent in

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NPD, especially among co-located groups (Wheeler, Dennis, & Press, 1999). Effective use of CWS
enables NPD groups to communicate, collaborate, and interact, facilitating dispersed interaction across
time and space (Sole & Applegate, 2000). For example, CWS help NPD groups through electronic
messaging, document transfer, electronic conference, and work flow automation. Wheeler et al. (1999)
describe three prominent collaborative functionalities of CWS that are particularly relevant for NPD - (a)
conveyance, which is the exchange of information among work unit members with interpretation,
understanding, and use of the information left to the individual (p. 13); (b) presentation, which is the
manipulation o f the format of contributions to help impose meaning by structuring, sorting, and analyzing
the discussion from individual contributions into a collective result; and (c) convergence, which is the
development of shared meaning among participants by converging their activities, ideas, and tasks.
First, effective use of conveyance systems promotes effective communications of project
schedules, ideas for quality improvements, and marketing intelligence. It can create synergies by
collecting knowledge and expertise and removing physical, spatial, and temporal limitations. For
example, CAD/CAM visualization systems allow NPD teams to examine engineering drawings at the
same time from virtually any location (Bensaou, 1997; Ozer, 1999). Other examples include documentbased collaboration, content management systems, and real-time collaboration tools, such as application
sharing, desktop videoconferencing, multimedia e-mail, and shared whiteboards through a standard Web
browser (Hamilton, 2001). Second, effective use of presentation systems include filtering, structuring,
and modeling tools that transform lists o f ideas into graphical images by depicting relationships among
them, and shaping discussion threads and manipulating component designs (Wheeler et al., 1999) (p. 14).
It has been shown to enhance brainstorming leading to better ideas, alternatives, and solutions (Molloy &
Schwenk, 1995). Finally, effective use o f convergence systems (e.g. virtual workspaces and simulation
tools) can clarify assumptions, elicit tacit knowledge, and construct and categorize histories (Grantham &
Nichols, 1993). It also enables simultaneous engineering and design for collective working on design
models. These systems help organize, structure, and focus knowledge to reach a group consensus. For
example, design aids and real-time prototyping provides integrated support to NPD designers, engineers,
and marketing personnel (Rockart & Short, 1989).

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5.3 The Nature of IT Competence in NPD


The following section describes the impact of the proposed three systems on overall IT
competence in NPD, and their respective inter-relationships.

5.3.1 Effective Use of PRMS and IT Competence in NPD


The effective use of PRMS has a positive impact on IT competence by increasing information
availability and processing capacity, and allowing cost-effective monitoring. For example, Bensaou and
Venkatraman (1995) argue that IT can be used for better control of information flows and better
coordination of non-structured tasks. This allows adaptive real-time planning at multiple levels, which
enhances coordination o f all NPD group members. Effective use of PRMS can also promote better
standardization, formalization, control, rales, and procedures (Andres & Zmud, 2002; Argyres, 1999).
Since NPD work units must assure on-time product development and sustain high quality levels, effective
use of PRMS helps accelerate product and process quality improvements through enhanced execution of
quality planning and management tools. Therefore, PRMS is expected to have a positive influence on IT
competence in NPD.

5.3.2 Effective Use of KMS and IT Competence in NPD


NPD is a knowledge-intensive activity, and the role of IT in supporting knowledge management
activities is fundamental. By viewing knowledge management as a process, the focus is not on managing
knowledge flows (the role of PRMS), but rather to create, share, distribute, and exploit knowledge. KMS
need not be constrained by certain types of knowledge because the advances in IT enable managing both
tacit and explicit knowledge (Alavi & Leidner, 2001). Effective use of KMS increases the potential of IT
to support NPD processes and solve knowledge-intensive problems (Alavi & Tiwana, 2002). Effective
use of KMS creates explicit linkages between various sources of knowledge, thus taking advantage of
knowledge-based resources in the NPD process. Finally, the effective use o f KMS has been linked to
successful knowledge creation and superior NPD performance (Eisenhardt & Martin, 2000; Henderson &
Cockbum, 1994; Powell et al., 1996).

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5.3.3 Effective Use of CWS and IT Competence in NPD


IT-enabled team management systems can facilitate information exchange, communication, and
mutual adaptation, referred to as communication or organic coordination, The effective use of CWS
facilitates communication, makes real-time information available to NPD team members, and enhances
team communication. The rapid communication and turnaround enables feedback, better coordination,
and learning, which improve product quality, reduce costs, and accelerate time-to-market for products.
Rich communication enabled by the effective use of CWS can enhance shared structures of interactions
and cognitions (Huber, 1990), facilitating a rich collaboration among team members and promoting an
IT-enabled competence in NPD groups (Alavi & Tiwana, 2002).

5.3.4 Relationship Among Effective Use of IT Systems


The proposed higher-order IT competence construct in NPD suggests that the first-order
dimensions must be cumulatively examined, and not as isolated systems. This is the result of the
convergence of IT systems into powerful technological solutions. The term product convergence
describes this overlap in IT functionality (Mantena & Sundarajan, 2002). In a NPD context, commercial
NPD software solutions embody several IT functionalities that merge PRMS, KMS, and CWS into
complete applications, which span the entire NPD process (Rangaswamy & Lilien, 1997).11 This is
consistent with Kraut & Streeter (1995) who argue that both formal (e.g., PRMS) and organic (e.g.,
CWS) tools are needed. Given the convergence of these traditionally distinct IT systems into an overall
NPD functionality, the effective use of the proposed three IT systems are highly inter-related and they
cumulatively contribute to a single higher-order factor, which more parsimoniously explains their joint
influence on NPD processes (as opposed to three independent effects). After all, the effective use of no
single IT system can single-handedly deliver competitive advantages (Henderson & Venkatraman, 1993).

11 The Aberdeen Group (www.aberdeen.coml proposes the term collaborativeproduct commerce' to describe
Internet solutions that tie together product design, sourcing, and engineering into a global NPD network. SAP
(www.sap.coml argues that collaboration rules the Internet economy, offering its Product Lifecycle Management
technologies that create a collaborative NPD environment and a seamless integration of processes among partners.

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To further support the existence of a unitary higher-order construct, I describe the inter
relationships among the effective use of the proposed first-order IT systems. First, the effective use of
CWS promotes the formal and informal sharing of meaningful and timely information (Anderson &
Narus, 1990), which support the capacity of KMS to generate knowledge through social interactions,
discussion, communication, and collaborative activities (Alavi, 2000). By providing the platform on
which people can accomplish rich communications, the effective use of CWS supports knowledge
transformation and generation (Nonaka, 1994). While CWS create project histories, KMS are then used to
catalog and store them, guaranteeing that valuable intellectual capital is securely held in databases, where
it can be searched and reviewed by team members, and versions can be maintained for reference. Second,
the use of KMS plays an important role in codifying knowledge, which in turn play a critical role in the
effective use of PRMS that necessitate codified knowledge. Similarly, the effective use of KMS provides
communication support, information sharing, and exchange of knowledge for enhancing strong and loose
ties among organizational members (Constant, Sproull, & Kiesler, 1996), supporting the effective use of
CWS. Finally, research suggests that the effective use of PRMS can facilitate communication (MontoyaWeiss, Massey, & Song, 2001) and centralized and decentralized coordination structures (Andersen &
Segars, 2001), thus supporting the effective use of KMS and CWS.

5.4 IT Competence in NPD as a Formative Second-Order Factor


Drawing from the previous discussions, there is theoretical support for mutually reinforcing
inter-relationships among the proposed three first-order IT systems in NPD, and the effective use of each
of them influences overall IT competence in NPD. This suggests that the literature has proposed
relationships among the proposed three underlying IT systems, but an overarching unitary factor can
capture these inter-relationships under a more parsimonious unitary construct. There are also synergies
and complementarities among the individual systems, which may enhance a unitary IT competence. In
terms of the exact nature of the IT competence structure, I propose a second-order formative variable that
arises from the effective use of all three first-order IT systems. A formative factor suggests that for the

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underlying lower-order factors, even if they are related, a change in any given factor does not necessarily
cause equal change in another, even if it may (as the proposed relationships imply).
Given that NPD groups can have different degrees of IT competence along any of the three
dimensions, the effective use of each system is proposed to influence overall IT competence in a
formative fashion. This results in a more parsimonious model for IT competence in NPD that is
theoretically amenable and managerially relevant, leading to a formal hypothesis:

H4: IT competence in NPD is a second-order formative structure formed by the effective


use of (a) project/resource management systems, (b) knowledge management systems, and
(c) cooperative work systems.

5.5 IT Competence and Resource Reconfigurability


The role of IT in achieving strategic flexibility has long been proposed (Boynton, 1993; Quinn
& Baily, 1994). There also has been a recent focus on building dynamic capabilities by taking advantage
of IT (Wheeler, 2002; Zahra & George, 2002b). As with most organizational processes, dynamic
capabilities can also be affected by IT (Tapscott, Ticoll, & Lowy, 2000). Drawing upon Grants (1995)
hierarchy of organizational capabilities, IT competence is viewed as the platform on which higher-order
organizational capabilities, such as dynamic capabilities can be built. Sambamurthy et al. (2003) also
view IT as a platform for competitive disruption moves and agility. Sambamurthy (2000) posits the role
of IT on transforming the value constellations of a firm by enabling innovative resource combinations.
This is consistent with Rayport and Sviokla (1995) who argue that IT can help organization engage in
rapid competitive moves. There is also empirical evidence that organizations can leverage IT to adopt to
change (Brown & Eisenhardt, 1997; Day, 1994). In sum, IT influences resource configurations (Powell &
Dent-Micallef, 1997) and contribute to strategic flexibility (Hitt et al., 1998).
Applied to NPD, the implementation of IT enhances innovation and can make the organization
more flexible and responsive, helping organizations to optimize their resources to build high-quality costeffective products that match market requirements (McGrath & Iansiti, 1998). By supporting the NPD
process, IT can thus achieve higher levels o f strategic flexibility in building superior products.

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At least four research streams justify the impact of IT competence on dynamic capabilities - (a)
bounded rationality, (b) information economics, (c) resource modularity, and (d) knowledge management
literatures. First, according to bounded rationality arguments (Galbraith, 1977), dynamic capabilities are
viewed as information processing routines. IT competence extends the limits of bounded rationality,
reducing its negative effects on decision making (Bakos & Treacy, 1986). This creates the opportunity for
IT competence to enhance information processing by supporting communication, overcoming
geographical and physical constraints, and improving the speed and accuracy of information sharing
(Bensaou & Venkatraman, 1995; Mendelson & Pillai, 1998). Hence, IT competence can readily enhance
information processing capacity, and thus dynamic capabilities. Second, Sambamurthy et al. (2003) draw
upon information economics (Shapiro & Varian, 1999) and strategic options theory to suggest that IT
competence intertwines with organizational processes to leverage digital economics. In doing so, IT
generates digital options and acts as a platform for dynamic capabilities. Third, Hitt et al. (1998) argue
that strategic flexibility can develop by managing the firm as a bundle of modular assets. Modularity of
knowledge has been argued to contribute to an adaptive potential for innovation, diversity, and novelty
(Galunic & Eisenhardt, 2001; Malone et al., 1999). Finally and most important, the knowledge
management literature is employed to justify the impact of IT competence on resource reconfigurability.

5.5.1 IT Competence and Knowledge Management Processes


An important element of dynamic capabilities lies in integrating knowledge (Helfat &
Raubitschek, 2000). Since resource reconfigurability is the process for coordinating, expanding,
integrating, and recombining critical knowledge resources into new functional competencies, IT is
considered especially critical for managing knowledge resources (Gomolski & Caldwell, 2002; Nonaka,
1991; Scott, 2000; Tiwana & Ramesh, 2001), and especially knowledge-intensive processes (Glazer,
1991; Harris & Katz, 1991; Powell & Dent-Micallef, 1997). In fact, the core function of IT is to process
and communicate knowledge (Alavi & Leidner, 2001; Huber, 1990).
Dynamic capabilities help identify mutually valuable synergies that can only be achieved
through the sharing and integration of knowledge resources (Teece et al., 1997). Dynamic capabilities are

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at the heart of communication among various development functions (D'Adderio, 2001), integrating
heterogeneous knowledge sources into new competencies. Applying the notion of knowledge integration
to dynamic capabilities (Grant, 1996a), three key dimensions could describe the development of dynamic
capabilities - (a) efficiency, (b) scope, and (c) flexibility.
First, efficiency refers to the speed by which knowledge is integrated from existing resources
into new competencies. Second, scope refers to the breadth o f knowledge resources that dynamic
capabilities can draw upon. Finally, flexibility refers to the extent to which dynamic capabilities can
access and integrate additional knowledge resources. The real challenge is to efficiently and effectively
aggregate the breadth and depth of existing knowledge resources into a reconfigured knowledge set to
comprise new functional competencies (Grant, 1996a). IT competence is proposed to facilitate this
knowledge management process by helping NPD groups quickly and efficiently manage and reconfigure
their knowledge resources to respond to new environments.

5.5.1.1 IT Competence and Knowledge Efficiency


The time it takes to manage knowledge resources has implications for the capacity to adapt to
change and exploit new opportunities (Grant, 1995). Therefore, the speed or efficiency by which
knowledge resources are reconfigured into new competencies is fundamental. Perhaps the greatest
advantage of IT is the rapid, convenient, and low-cost exchange o f knowledge. In fact, Scott (2000)
shows that IT increases the velocity of knowledge flows. Therefore, IT competence prevents NPD work
units from remaining stuck to outdated resource configurations because of the prohibitive costs from
pursuing new configurations. A second attribute that contributes to efficiency is quality and accuracy
(Goodhue, 1995; Huber, 1990). IT competence allows more reliable information at the right level of
detail in readily usable form, enabling knowledge synchronization. In sum, IT competence enables
resource reconfigurability by increasing the speed, lowering the costs, and improving the quality of
managing and reconfiguring knowledge resources.

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5.5.1.2 IT Competence and Knowledge Scope


IT systems are often necessary to facilitate sharing large amounts of knowledge (Hitt et al.,
1998). Thus, IT competence increases the range and diversity of knowledge that can be reconfigured by
reducing the effort required to exchange information. IT competence increases the diversity and richness
of knowledge available in organizational and inter-organizational groups (Scott, 2000; Sproull & Kiesler,
1986, 1991). This is especially important for geographically-dispersed groups where a wider range of
people can serve as knowledge providers (Huber, 1990). Empirical research has shown that IT increases
the range and amount of knowledge flows (Scott, 2000). Another important attributes of IT competence
that relates to knowledge scope is comprehensiveness (Huber, 1990). IT reshapes the mechanisms by
which heterogeneous knowledge can be coordinated, managed, and integrated. IT can also enhance
boundary spanning capabilities and collaboration through feedback and networking (Dewett & Jones,
2001). IT competence can support team-based processes, such as knowing each others role, skills, and
expertise, understanding how to use knowledge and decide on progress (Day, 1994). This creates diverse
communities o f knowing by facilitating perspective making and taking (Boland & Tenkashi, 1995). In
sum, IT competence facilitates the scope of knowledge that resource reconfigurability can draw upon by
increasing the range, amount, and diversity of knowledge in NPD groups.

5.5.1.3 IT Competence and Knowledge Flexibility


A critical impact of dynamic capabilities are accessibility and availability of knowledge (Culnan,
1983; Huber, 1990). IT competence, such as the effective use of databases, knowledge directories, and
networks allows more rapid and easier way to locate desired knowledge. Such systems include filtering,
storage, and retrieval mechanisms, and systematic data collection and presentation (Daft & Lengel, 1986).
IT competence also enhances the timeliness or currency of knowledge by immediately bringing
information to the attention o f relevant parties. This is enhanced by transforming tacit knowledge into

explicit, and making knowledge readable in real-time (Grant, 1995). Timelines of knowledge enables
flexibility in accessing, integrating, and reconfiguring knowledge resources. IT competence can also
enhance analysis and examination of knowledge by providing intelligent systems and analytical routines

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(Mahajan & Venkatesh, 2000; Molloy & Schwenk, 1995). In sum, IT competence increases the flexibility
by which knowledge can be reconfigured by enhancing its accessibility, currency, and analysis.
In summary, IT competence facilitates resource reconfigurability by increasing (a) the efficiency
by which knowledge can be reconfigured into new competencies through rapid and accurate knowledge
sharing, (b) the scope of knowledge used as a basis for new competencies by bringing to bear diverse and
comprehensive knowledge resources, and (c) knowledge flexibility through higher accessibility,
timeliness, and analysis of existing knowledge.

5.5.1.4 IT Competence and Dimensions of Resource Reconfigurability


In addition to the overall impact of IT competence on resource reconfigurability as a knowledge
management process, theoretical and empirical evidence links IT to the underlying dynamic capabilities coordination competence, absorptive capacity, collective mind, and market orientation.
First, coordination competence is an information-processing process that has been theorized to
be supported by IT (Crowston, 1997). Empirical evidence has shown that IT improves coordination by
enabling communication and knowledge sharing, even beyond organizational boundaries (Nonaka, 1991).
The ability to coordinate activities with IT has been posited as a critical element of successful firms
(Sambamurthy & Zmud, 1992). Second, absorptive capacity can be enhanced by IT that can enhance
existing information utilization to generate new knowledge (Alavi & Leidner, 2001). Third, collective
mind builds by integrating the thought worlds of different communities of knowing, which is made
possible by making knowledge visible and accessible through IT (Boland & Tenkashi, 1995). Finally,
there is evidence that IT competence can enhance market orientation by gathering market intelligence
with ease and at a low cost (Molloy & Schwenk, 1995). IT has been shown to enable market-sensing
activities and market orientation (Day, 1994; Glazer, 1991; Sinkula, 1994a; Slater & Narver, 1994).
In sum, there is an abundance of theoretical and empirical support to link IT competence with
dynamic capabilities, and particularly resource reconfigurability and its underlying dimensions. More
specifically, IT competence influences competitive advantage by facilitating processes that can be
uniquely leveraged by IT (Feeny & Ives, 1990). Resource reconfigurability is viewed as the strategic

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process that uniquely utilizes IT to sustain aligned configurations of functional competencies with
environmental conditions and create superior performance outcomes (process efficiency and product
effectiveness). The preceding arguments suggest:

H5: IT competence in NPD positively influences resource reconfigurability.

5.6 Mediating Role of Resource Reconfigurability


It is necessary to clarify the mediating role of resource reconfigurability between IT competence
and NPD performance. According to Amit and Schoemaker (1993), dynamic capabilities are intermediate
goods that transform existing resources into new competencies. This is consistent with Grant (1995) who
argues that the resource base has only an indirect link with higher-order competencies, such as the NPD
competence. Thus, IT competence is the basis for the intermediate dynamic capabilities that in turn
develop new functional competencies, which at any given time influence competitive advantage.

6. Environmental Turbulence
Environmental turbulence is a critical contingency that causes unexpected interactions that are
hard to observe (Weick & Roberts, 1993) that call for adapting to new opportunities (Duncan, 1972).
McKelvey (1997) argues that organizational evolution cannot be understood independently from the
evolution of the environment, advocating a co-evolutionary perspective to studying firm adaptation. The
resource-based view highlights the external environment as a critical condition for resource management
(Wemerfelt & Aneel, 1987). Extending the resource-based view with the dynamic capabilities
perspective (Makadok, 2001), the role of environmental turbulence has taken a central stage (Teece et al.,
1997). Therefore, the role of environmental turbulence is accounted for in the proposed model.
Environmental turbulence has been defined as the general conditions of uncertainty or
unpredictability, and it is often the result o f a high rate of change in consumer preferences, technology

developments, and market conditions (Mendelson & Pillai, 1998). Environmental turbulence is described
by (a) dramatic increases in the number of events, (b) frequent turnovers in the general stock of
knowledge, (c) high levels of change (both in magnitude and direction), (d) sharp discontinuities in
demand and growth rates, and (d) considerable uncertainty and unpredictability about the future (Glazer

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& Weiss, 1993). Applied in the NPD context, it is viewed as a multi-dimensional combination of market
and technological turbulence. Indeed evidence shows that rapidly changing environments differentiate
between NPD work units (Song & Parry, 1997b). This study examines the effects o f environmental
turbulence on (a) resource reconfigurability, (b) the relationship between resource reconfigurability and
competitive advantage, and (c) the relationship between IT competence and resource reconfigurability.

6.1 Environmental Turbulence and Resource Reconfigurability


Environmental change destroys the value potential of existing competencies, creating core
rigidities (Danneels, 2000; Leonard-Barton, 1992). These rigidities demand dramatic action and
improvement effort (Day, 1994), forcing organizations to recombine their existing resources to create
new, more well aligned configurations with the new environment. High-velocity environments increase
the chances that any given resource configuration set will soon become outdated, making resource
reconfigurability a much needed initiative. In such turbulent environments, organizations are likely to
have to modify their products continually to satisfactorily address customers changing preferences. For
example, organizations in competitive environments tend to be more market oriented. An increased
environmental pace hence forces NPD work units to develop capabilities for adaptation and change
(Brown & Eisenhardt, 1997; Eisenhardt & Tabrizi, 1995), such as resource reconfigurability.
Adaptation and change require feedback from the external environment that affects the evolution
of new competencies. While dynamic capabilities rely heavily on existing knowledge in moderately
changing markets, in rapidly-changing markets, dynamic capabilities rely more on new knowledge
(Eisenhardt & Martin, 2000). The quest for new competencies to take advantage o f new opportunities
encourages NPD work units to reconfigure their existing knowledge resources.
Turbulent environments often create new opportunities, and organizations must adapt their
resources in response to these opportunities. In rapidly-changing environments, there is often a high
discrepancy between existing competencies needed to take advantage of them (Fredrickson & Mitchell,
1984). For example, Van den Bosch et al. (1999) show that firms have increased need for absorptive
capacity because of turbulent knowledge environments. In addition, upsurge in the amount of new

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information increased the disposition to interrelate actions (Weick & Roberts, 1993), thus facilitating a
collective mind. The aforementioned arguments suggest:

H6: Environmental turbulence positively influences resource reconfigurability.

6.2 Environmental Turbulence on Resource Reconfigurability-Competitive


Advantage Relationship
There is a consensus in the literature of the importance of external environmental conditions to
the success of strategic initiatives (Moorman & Slotegraaf, 1999; Slater & Narver, 1994). However,
success in rapidly changing conditions involves expecting the unexpected, discovering new opportunities,
creating new competencies, and competing in uncertain conditions (Kirzner, 1973; Sambamurthy, 2000).
There is evidence that emergent processes have great value in uncertain environments (Burgelman, 1983).
Eisenhardt and Martin (2000) argue that dynamic capabilities would have different effects in high
velocity versus stable markets because effective patterns of dynamic capabilities vary with environmental
turbulence. This is consistent with Sambamurthy (2000) who argues that hyper competitive environments
reward strategic flexibility and agility. Volberda (1996) and Barney (1991) also stress the importance of
strategic flexibility in hyper competitive environments. Empirical evidence suggests that faster
clockspeeds positively influence the impact of organizational capabilities on performance outcomes
(Mendelson, 2000; Mendelson & Pillai, 1998).
Environmental turbulence is expected to moderate the resource reconfigurability-competitive
advantage relationship because it increases the advantages of reconfiguration versus inert resources.
Dynamic capabilities drive a high aspiration level toward exploiting environmental opportunities and
engaging in innovative activities. Greater opportunities increase the incentive to build dynamic
capabilities. Environmental turbulence increases the likelihood that resource reconfigurability creates
valuable outcomes, while improves the possibility that no recombinative action might be dangerous.

On the other hand, reconfiguring resources in stable environments may not only useless, but it
can also be disruptive, costly, and time consuming (Moorman & Miner, 1998a). Zammuto (1988) further
predicts a low performance in stable environments because the slow pace of changes rewards efficient
exploitation of extant opportunities, as opposed to aggressiveness. NPD in rapidly changing environments

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may require dynamic capabilities as opposed to disciplined problem solving (Brown & Eisenhardt,
1997).12 While organizations rely extensively on new products (Nambisan 2003), this reliance is much
greater in industries with higher clockspeed (Griffin 1997; Mendelson and Pillai 1998). Environmental
turbulence is thus posited as an important value contingency on the impact of resource reconfigurability
on NPD performance outcomes.

H7: The positive relationship between resource reconfigurability and competitive


advantage in NPD is reinforced by environmental turbulence.

6.3 Environmental Turbulence on IT Competence-Resource Reconfigurability


Relationship
The manipulation of knowledge resources is particularly critical in turbulent environments
(Grant, 1996b; Kogut & Zander, 1996). Environmental turbulence increases the knowledge intensity of
business processes, escalating the importance and emphasis on knowledge (Hitt et al., 1998). The
increased knowledge intensity of the competitive landscape necessitates the effective use of IT to support
dynamic business processes (p. 32). Turbulent environments require the use of IT to support rapid
communications (Mendelson & Pillai, 1998). As Mendelson and Pillai argue, the higher the rate of
environment change, the greater the use o f communication technologies to improve information flows.
In rapidly changing environments where there is urgent need for efficient and effective
knowledge management, the effect of IT on dynamic capabilities is likely to be more pronounced. This is
because IT allows greater flexibility in reconfiguring resources and effectively timing development of
new functional competencies at a lower cost (Zahra & George, 2002a). This suggests that IT competence
should have a stronger effect on resource reconfigurability in turbulent environments.

H8: The positive relationship between IT competence in NPD and resource


reconfigurability is reinforced by environmental turbulence.

12 Eisenhardt and Martin (2001) argue that in moderately dynamic environments, dynamic capabilities are
complicated, detailed, analytic processes that rely extensively on existing knowledge and linear execution to produce
predictable outcomes. In high-velocity markets, however, dynamic capabilities become simple, experiential, unstable
processes that rely on new knowledge to produce adaptive, but unpredictable outcomes.

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Table 1 summarizes the definitions o f the principal constructs that constitute the research model.

Table 1. Definitions of Principal Constructs


______________________________ Dynamic Capabilities_______________________________
Dynamic capabilities are defined as the ability to integrate, build, and reconfigure existing resources to renew
competencies that adapt to rapidly changing environments._______________________________________________

____________________________ Resource Reconfigurability_____________________________


Resource reconfigurability is defined as the ability to recombine existing internal and external resources in
innovative ways to renew functional competencies that match environmental contingencies.___________________

____________________________ Coordination_Competence_____________________________
Coordination competence is defined as the ability to effectively synchronize tasks, allocate knowledge resources,
and assign tasks.___________________________________________________________________________________

_______________________________Absorptive Capacity_______________________________
Absorptive capacity is defined as the ability to effectively acquire, assimilate, transform, and exploit knowledge.

_________________________________Collective Mind_________________________________
Collective mind is defined as the ability to effectively contribute to the group outcome, represent the collective
input, and rely on the group system.__________________________________________________________________

_______________________________ Market Orientation________________________________


Market orientation is defined as the ability to generate, disseminate, and be responsive to market intelligence.

_________________________________ IT Competence_________________________________
IT competence is defined as the ability to acquire, deploy, and leverage IT functionality in combination with
other resources to support business processes in value adding ways.________________________________________

Functional Competencies_____________________________
Functional competencies are purposive combinations of resources that enable accomplishing a given task.________

_________________________ Strategy-Environment Alignment__________________________


Strategy-environment alignment is defined as an effective configuration between functional competencies
(strategy) and environmental turbulence (environment).___________________________________________________

______________________ New Product Development (NPD) Process_______________________


The NPD process is defined as the set o f activities that start with the perception of a market opportunity and
ending in the production, sales, and delivery of a product (Ulrich & Eppinger, 1995)(p. 2).__________________

__________________________ Competitive Advantage in NPD___________________________


Competitive advantage in NPD is operationalized as the combination of product quality and process efficiency.
________________________________________ Process Efficiency_________________________________________
Process efficiency generally consists of (a) time to market and (b) overall development cost.____________________
_______________________________________Product_Effectiveness_______________________________________
Product quality is defined as the perceived product superiority or excellence compared to competing alternatives;
product innovativeness is defined as the extent to which a new product provides meaningfully unique benefits.

____________________________ Environmental Turbulence_____________________________


Environmental turbulence is defined as the general external conditions of technological and market uncertainty.

____________________________ Technological_Turbulence_____________________________
Technological turbulence refers to the inability to accurately forecast new technological requirements because of
rapid changes in the underlying technology.____________________________________________________________

_______________________________ Market_Turbulence________________________________
Market turbulence describes the unpredictability of environmental demands and marketing practices.____________

_________________________ Interorganizational Relationships__________________________


Interorganizational relationships are defined as purposive strategic relationships between independent firms.______

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7. Control Variables
The literature has identified several factors associated with successful NPD (Brown &
Eisenhardt, 1995),13 which are controlled for in this study for a potential impact on competitive
advantage. In addition, factors having been associated with dynamic capabilities are also accounted for.

7.1 Cross-Functional Integration


Cross-functional integration describes the quality of interaction among different functional areas.
While functional knowledge is essential for superior performance, this knowledge must be integrated
during the course of the NPD process (Imai, Ikujiro, & Takeuchi, 1985). Cross-functional integration is
expected to influence competitive advantage and resource reconfigurability, as justified below.
First, cross functional integration has been shown to have a significant influence on the speed
and success of NPD (Clark & Fujimoto, 1991), and the swift development of new products (Imai et al.,
1985) by allowing work units to have a greater breadth and depth of expertise (Donnellon, 1993; Kahn,
1996). For example, cross-functional integration of marketing with R&D has also been shown to
positively influence performance in Japanese firms (Song & Parry, 1993). In general, there is evidence
for the positive impact of cross-functional work units on performance (Jehn, Northcraft, & Neale, 1999;
Song & Parry, 1993, 1997a; Williams & O'Reilly, 1998).
Second, formal and informal connectedness of functional areas facilitates the exchange of
knowledge (Jaworski & Kohli, 1993), promoting learning and new knowledge. The pursuit of greater
knowledge integration may develop superior dynamic capabilities (Karim & Mitchell, 2000). By
combining diverse knowledge sources, cross-functional work units intensify their efforts to achieve new
skills and create new knowledge frames. In doing so, they essentially reinforce their efforts to build
resource reconfigurability.

13 Other NPD success factors not explicitly controlled for include concurrent engineering (Krishnan, Eppinger, &
Whitney, 1997), quality function deployment(Hauser & Clausing, 1988), early supplier involvement (Primo &
Amundson, 2002), heavyweight leaders (Brown & Eisenhardt, 1995), strong senior management, power and
managerial skills of the project leader, and the presence of gatekeepers (Verona, 1999).

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7.2 Functional Diversity


Functional diversity refers to the number of functional areas represented in an NPD work unit.
Effective NPD efforts require a diversity o f knowledge because they are often technically complex and
capital intensive. As the number of functional areas increases, the variety of perspectives, skills, and
expertise increases. The basic rationale comes from enhanced creativity, new ideas, and task conflict that
are usually present in diverse teams (Jehn et al., 1999; Pelled, Eisenhardt, & Xin, 1999). Functional
diversity increases the set of opportunities for resource reconfiguration (Galunic & Eisenhardt, 2001) (p.
1244), by creating more learning opportunities and extending the knowledge base. After all,
reconfiguration requires exchange of ideas across multiple relevant domains of expertise. The impact of
functional diversity on resource reconfigurability is then controlled for. Functional diversity is a mixed
blessing since it not only creates the potential for superior dynamic capabilities, but it may increase
coordination and communication costs (Cummings, 2001), and thus hurt NPD performance. Therefore, its
impact on competitive advantage in NPD is also accounted for.

7.3 NPD Experience


Experience has been shown to influence NPD performance (Song & Parry, 1997b). Knowledge
created in prior products is the basis for developing new ones (Marsh & Stock, 2002). Building upon past
knowledge into current projects is related to successful products (Iansiti & Clark, 1994). Therefore,
experience in NPD - operationalized as the age o f the NPD work unit - is controlled for its effect on
competitive advantage.
Dynamic capabilities are based on knowledge routines that develop through experience.
Experience accumulation refers to the learning processes by which capabilities are traditionally built
(Zollo & Winter, 2002). Experience gained in prior projects, even failed ones is the basis for advancing
new competencies. Hence, the impact of experience on resource reconfigurability is controlled for.

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7.4 NPD Knowledge


Dynamic capabilities are integrative processes by which knowledge-based resources are
reconfigured to create new competencies. Knowledge increases the potential for effective action (Alavi,
2000). Hence, existing knowledge resources are the basis for the development of new competencies
(Cohen & Levinthal, 1990; Marsh & Stock, 2002). Hence, existing NPD knowledge is posited as the
means by which dynamic capabilities are developed. This is consistent with Nonaka (1994) and Grant
(1996a) who argue that existing knowledge is the primary source of knowledge creation. The propensity
to explore new knowledge is tied to the existing depth and breadth of knowledge (Van Wijk, Van de
Bosch, & Volberda, 2001). This is consistent with Mowery et al. (1996) who maintain that overlapping
knowledge bases determine the ability to receive and assimilate knowledge. Sobrero & Roberts (2001)
finds empirical evidence that the higher the knowledge present, the greater the opportunities to leam.
Following Zahra and George (2002a) and Cockbum et al. (2000), I expect that the greater the knowledge
in NPD, the greater would be the opportunities to develop superior resource reconfigurability.

7.5 Innovation Type


A central issue in NPD is the nature of the product innovation sought (Sivadas & Dwyer, 2000).
NPD projects can differ in terms of their type, from (a) routine engineering and improvement of existing
products to (b) building new products based on existing ones, to (b) creating radically new products.
Radical innovations require a greater outlay of resources and are riskier than incremental advances; in
contrast, incremental innovations place lower demands. However, the potential impact of radically new
products on competitive advantage is greater than o f reengineered ones. In any case, project type is taken
into consideration for its impact on competitive advantage.
Project type is also likely to impact dynamic capabilities. Routine engineering projects are likely
to rely on existing competencies, and not require any reconfiguration of resources. Radical innovations
require more learning and development or reorientation o f new competencies. Similarly, coordination of
innovative projects is difficult. Projects that strive for radical innovations are likely to necessitate
dynamic capabilities. Therefore, type of NPD project is controlled for on resource reconfigurability.

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7.6 Intra- Vs Inter-Organizational Work Units


Even if the proposed model is expected to hold for both internal and inter-organizational NPD
work units (Sivadas & Dwyer, 2000), it is important to identify potential differences between the two
types in terms of performance outcomes, dynamic capabilities, and IT competence. First, Harrigan and
Newman (1990) suggest that inter-firm NPD alliances permit the creation of new products that each party
may find difficult to produce individually. However, NPD work units formed by different organizations
might not share the same organizational culture or firm identity (Brown & Eisenhardt, 1995). Additional
coordination time may be required if inter-firm work units are hard to manage (Clark, 1989). Even if it is
not clear if internal or inter-firm NPD is superior, this factor is accounted for. Second, it is practically
easier to build capabilities within an organizational work unit than across organizational boundaries. For
example, the internalization of complex tasks, such as dynamic processes that involve performance
ambiguity and opportunism hazards is often superior to interfirm alliances (Williamson, 1985). Thus,
resource reconfigurability is likely to be superior for internal NPD work units.

7.7 Virtuality
While activities of highly-interdependent units had to be collocated to reduce communication
and coordination costs (Fulk & DeSanctis, 1995), advances in IT and particularly low-cost Internet-based
IT obviate the need for physical proximity. Virtual environments are defined as settings in which
individuals work across space, time, and organizational boundaries with communication links established
and supported by IT (Maznevski & Chudoba, 2000). Virtual work groups consist of individuals working
in geographically dispersed locations with increased computer-mediated communication and use of IT
and networking devices. Following Alavi and Tiwana (2002), there is a continuum between collocated
and virtual team environments, which is controlled for in this study by measuring the degree to which
activities are supported by IT. Virtual NPD work units must rely more on IT to facilitate their interactions
(Fulk & DeSanctis, 1995; Sproull & Kiesler, 1991). Evidence shows that virtual environments place
barriers to effective communication (Alavi & Tiwana, 2002). According to Hinds and Mortensen (2002),

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distributed teams exhibit greater coordination problems, more diversity, and are more susceptible to
conflict. Virtual teams also differ in the degree of information sharing and integration they can achieve
because of the limits o f the IT functionality (Kraut, Fussell, Brennan, & Siegel, 2002). On the other hand,
Schmidt, Montoya-Weiss, and Massey (2001) found that virtual NPD teams are more effective than
traditional face-to-face teams. Similarly, Wind and Mahajan (1997) argue that electronically linked NPD
sites is one of the key elements of successful NPD projects. Irrespective of the impact of virtuality on
NPD performance, resource reconfigurability, and IT competence, its potential impact is controlled for.

7.8 Collaborative Development


Intensive partner involvement in NPD has been shown to create a faster and more productive
NPD process by detecting and solving problems early on (Schilling & Hill, 1998). External partners often
provide complementary capabilities, thus improving the NPD process (Clark, 1989). In general,
collaborative interfirm NPD partnerships are beneficial in the long run, and communication and effective
problem-solving positively influences NPD processes (Primo & Amundson, 2002; Ragatz et al., 1997).

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CHAPTER 4: RESEARCH METHODOLOGY


1. The Context for Theory Testing
The research design combined field interviews and survey research, aiming to triangulate theory
with both qualitative and quantitative data. Field interviews were conducted to inform theory
development, maintain a tight link between theory and practical NPD issues, and provide qualitative
support for the proposed theoretical framework. The resulting research model and associated hypotheses
were tested with data from two distinct survey studies. The key informants were NPD managers in
multiple industries who were asked to report the abilities, performance, and other characteristics o f their
NPD work units. Consistent with the theoretical development, the survey was conducted at the NPD unit
level. This view is consistent with organizational studies (e.g., Mendelson 2000) that use the business unit
as the level and unit of analysis. Following Sivadas and Dwyer (2000), the NPD work units formed by
either (a) departments or functions (for internal NPD) or (b) by strategic partners (for external NPD) are
the respective units of analysis for the study.
Study I used a sample o f 121 NPD managers drawn from selected participants of the Product
Development and Management Association 2002 annual conference (www.pdma2002.org). Study II used
59 NPD managers from the participants of the 2003 Roundtable Management conference on collaborative
product development (www.CoDev.orgl.

2. Field Interviews
Parallel to theory development, thirty-three field interviews were conducted with senior
executives (e.g., R&D executives or directors, VPs of Engineering, Marketing, or Product Development),
NPD managers (e.g., group leaders, project directors, program managers), and engineers (e.g., IT
directors, engineering managers, research scientists). The purpose of these interviews was threefold: First,
I sought to get an initial feel for the relevance, importance, and face validity of the initial theoretical
framework. Interview findings were not viewed as validation of the research hypotheses, but rather as
qualitative confirmation that the model was in line with managerial experiences. Second, the interviews
aimed at guiding further theory development, especially toward identifying and understanding success

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factors, key abilities, or best practices that were not initially included in the research model. For example,
these interviews provided the basis for better understanding best practices in managing resources in
rapidly changing environments, and how to effectively use IT functionality to build IT competence in
NPD. Finally, the interviews helped improve the construct validity of the measurement instrument
(Straub, 1989), by refining the measurement scales, and ultimately pilot testing the survey instrument.
Following Song and Parry (1997a), these field interviews aimed to complement construct
development by assessing (a) conceptual, (b) functional, and (c) category equivalence. First, the
respondents were asked to describe important issues in NPD, especially success and failure factors. This
provided the opportunity to explore, qualitatively assess, and enrich the proposed conceptual model. The
semi-structured interviews covered all topics of interest; nevertheless, care was paid to encourage the
interviewees to use their own language to describe the processes, characteristics, and use of IT tools in
their NPD work units. Second, questions aimed at understanding whether the proposed theoretical model
was consistent with the managers own NPD experiences. I focused on understanding the language,
nature of their tasks, technologies used, and the relevance of the constructs to their own experience. I
categorized their responses into three classes - (a) supporting my thinking, (b) conflicting my current
thinking, or (c) new ideas not included in the initial model. In the last two cases, additional literature
review and theory development was undertaken to refine the research model. In a few cases, some of the
new ideas (e.g., organizational culture, problems with IT adoption, and security of the IT infrastructure),
despite highly important, were deemed outside the scope of this study. Finally, some of the respondents
were presented the scale items and were asked to comment on their relevance and comprehensiveness
(full details are provided in the pilot test section below). According to Churchill (1979), in addition to
defining the theoretical domain of proposed constructs, it is useful to get insight from experts, especially
when dealing with new scales. These industry practitioners were deemed appropriate to provide guidance
on the operationalization o f the theoretical constructs.

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3. Measurement Development
Wherever possible, measurement items were adapted from existing scales from the literature.
For new measures and for measures that required significant deviations, I followed standard psychometric
scale development procedures (Bagozzi & Phillips, 1982; Boudreau, Gefen, & Straub, 2001; Churchill,
1979; Gerbing & Anderson, 1988). First, the domain o f the relevant construct was specified. Second, a
large pool of items was developed based on the conceptual definition, assuring that these items tap the
domain of each construct as closely as possible. From this pool, the best items were selected based on
their ability to convey different, yet related shades of meaning to the participants (Churchill, 1979). Third,
the items were refined on the basis of the pretests of the survey instrument.
The measurement development aimed at accomplishing two primary tasks. First, the measures
aimed at being concrete by denoting specific practices that could be easily applied by practicing NPD
managers, while not precluding capturing the overarching abstract concept. Second, content validity of
the measures was sought, emphasizing consistency with the construct theoretical definition and making
use of existing scales. Each measure covered the range of its concepts meaning and underlying
dimensions, following the recommendations of Nunnaly (1978) and Straub (1989).

3.1 Measurement Instrument


Following the strategic management literature (Day, 1994; Grant, 1991, 1995), capabilities,
competencies, and performance outcomes are conceptualized relative to the competition. Accordingly, in
terms of measurement, the respondents were asked to assess their work units dynamic capabilities, NPD
competencies, IT competence, and NPD performance relative to their major competitors. The entire
measurement instrument is shown in Table 4.

3.1.1 Dynamic Capabilities


Dynamic capabilities was conceptualized and operationalized as a distinct factor with several
dimensions. The scores for each capability were computed by equal weighting and summing of the
corresponding item scores. For example, for coordination competence, it was the unweighted sum of its

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three underlying components - synchronization, resource allocation, and task assignment. Since dynamic
capabilities cannot be easily articulated (Eisenhardt & Martin, 2000), the measures focused on the focal
NPD context, and they were shaped to apply to both intra- and inter-organizational NPD work units.
The overall set of dynamic capabilities was measured with a 37-item Likert-type scales,
anchored at strongly disagree (1), strongly agree (5), and neither agree nor disagree (3). O f these,
eight items pertain to coordination competence, ten to absorptive capacity, eight tap collective mind, and
eight market orientation. Where possible, indicator variables were also used to capture the meaning of the
entire construct for verification purposes.14 For example, three items directly capture the latent higherorder construct of resource reconfigurability.

3.1.1.1 Resource Reconfigurability


Since resource reconfigurability has been proposed as a second-order abstract concept, its four
formative dimensions drive its measurement. Nonetheless, I attempted to directly capture this abstract
term by focusing on the effective outcome of resource reconfiguration with three direct measurement
items. The correlation between this direct measure and the four first-order dynamic capabilities was .69
for coordination competence, .63 for absorptive capacity, .62 for collective mind, and .65 for market
orientation.15 The correlation of the direct measurement with the weighted sum of the four first-order
capabilities was .76. All these correlations are statistically significant at the p<001 level.

3.1.1.2 Coordination Competence


The items measuring coordination competence were based on the theoretical work of Malone
and Crowston (1994) and Crowston (1997) to capture the dimensions of synchronization, resource
allocation, and task assignment. The exact items were influenced by the work o f Hinds and Mortensen
(2002) and Sivadas and Dwyer (2000) that measure coordination aspects. A s expected, the three
components fell into a single factor. In addition, two indicator items measured the overall degree of

14 These indicator items were not used for data analysis other than for comparing the correlation between the average
of the underlying components and the indicator. A high correlation suggests that the measurement of the underlying
items and their aggregation adequately captures the theoretical domain of each construct (content validity).
15 All correlation values shown are drawn from the aggregate of the two empirical studies.

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coordination competence. The correlations among the three components of coordination competence
ranged from .65 to .72; their respective correlations with the overall coordination competence indicator
were .74 for synchronization, .76 with resource allocation, and .70 for task assignment. All these
correlations were significant at the p<.001 level. Therefore, a single factor for coordination competence
was created using an unweighted sum o f the six measurement items.

3.1.1.3 Absorptive Capacity


The measurement items of absorptive capacity focused on the components of knowledge
acquisition, assimilation, transformation, and exploitation (Cohen & Levinthal, 1990; Huber, 1991; Zahra
& George, 2002a), each with two items. Moreover, an overall indicator of absorptive capacity was
operationalized with two items. Unidimensionality analysis suggested that these three components span a
single overall construct, whose correlation with the direct measurement was .74. The correlations among
the four components ranged from .68 to .83, which are all significant at the p<.001 level. Thus, a single
overall construct for absorptive capacity was created using the eight measurement items. Cohen and
Levinthal (1990) attested that a valid proxy for absorptive capacity is the firms expenditure on research
and development relative to its sales. This figure was also assessed in this study (with a self-reported
figure), which was highly correlated with the overall measure of absorptive capacity (r=.36, p<05).

3.1.1.4 Collective Mind


A new scale was developed to measure collective mind based on the conceptual description of
Weick and Roberts (1993) and Crowston and Kammerer (1998). The three underlying components o f a
collective mind - contribution, representation, and interrelation - were measured with two items each. The
three components were highly correlated to each other (correlations ranged from .62 to .77), and each
component was highly correlated with the overall indicator for collective mind (contribution at .81,

representation at .92, and interrelation at .72), all significant at the p<.001 level.

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3.1.1.5 Market Orientation


Market orientation was measured using a shorter version of the well-validated 32-item scale of
Jaworski and Kohli (1993), which was substantially shortened based on the pilot studies. The scale
captured three dimensions of market orientation - generation of market intelligence, dissemination of
market intelligence, and responsiveness to market intelligence - using eight items. The scale was
influenced by Kirzner (1973) and Zahra and George (2002b), and it focused on alertness to new market
opportunities and response to competitors actions. Consistent with the literature, all three underlying
components were highly correlated (,62-,76 range). The overall indicator of market orientation was
correlated with generation of market intelligence at .78, dissemination of market intelligence at .77, and
responsiveness to market intelligence at .88, all statistically significant at p<.001 level.

3.1.2 IT Competence in NPD


IT competence was measured with a total of 21 items obtained from a review of the literature on
IT competence, software functionalities, and NPD technologies. The basic idea was to assess the extent to
which a number of critical IT competencies are effectively utilized in NPD work units, drawing upon the
recommendations of Bharadwaj (2000), Sambamurthy and Zmud (2000), and Sabherwal (1999). Special
care was taken to tightly link the functionality of the IT tools with specific processes (Lind & Zmud,
1995). In addition to the specific dimensions of IT competence in NPD, two items directly measured the
overall degree of IT competence, which was correlated with the overall factor at .93. The correlations
between the overall higher-order construct and the three direct first-order dimensions are .88 for
project/resource management systems (PRMS), .91 for knowledge management systems (KMS), and .90
for cooperative work systems (CWS). The correlations among the three first-order factors ranged from
.66 to .74. All correlations are statistically significant (p<001 level).

3.1.2.1 Project/Resource Management Systems


PRMS was measured with seven items based on the specific functionalities described by Pinto
(2002) and Rangaswamy and Lilien (1997). These functionalities focused on three components of PRMS

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- scheduling and time management, resource management, and task assignment. Principal component
analysis reveals that these components cumulatively create a single factor.

3.1.2.2 Knowledge Management Systems


KMS was measured with six items, following Alavi and Leidner (2001). The KMS
functionalities captured the proposed three components of coding, storing, and sharing of knowledge and
best practices, creating knowledge directories, and building knowledge networks. As expected,
unidimensionality tests showed that the six measurement items span a single construct.

3.1.23 Cooperative Work Systems


CWS were measured with six items based on the theoretical work o f Wheeler et al. (1999). The
three components were conveyance, presentation, and convergence; all formed a single unitary construct.

3.1.3 Competitive Advantage


Competitive advantage was measured with (i) perceived measures o f differential measures
relative to the competition (product effectiveness and process efficiency), (ii) a direct measure of
perceived competitive advantage, and (iii) with objective measures of common performance outcomes.

3.1.3.1 Multiplicative Interaction of Product Effectiveness and Process Efficiency


Competitive advantage is operationalized as the interaction of product effectiveness and process
efficiency across the NPD work units portfolio of products, produced by the mathematical multiplication
of the two first-order factors. Operationalizing competitive advantage as the combination of product
effectiveness and process efficiency is in agreement with the literature on competitive advantage in
general (Bakos & Treacy, 1986; Feeny & Ives, 1990; Jap, 2001), and NPD in particular (Clark &
Fujimoto, 1991; Ittner & Larcker, 1997).
In addition to viewing competitive advantage as the interaction between product effectiveness
and process efficiency, other possible operationalizations were tested, such as a (a) simple average, and a
(b) higher-order (i) formative and (ii) reflective variable based on the two first-order factors (product

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effectiveness and process efficiency). While all solutions are highly correlated (range = .88-.93), the
interaction is deemed more appropriate because it (a) is consistent with the literature and proposed
conceptualization (Ittner & Larcker, 1997), (b) it is more highly correlated (.67) with the competitive
advantage indicator than the others (.64-.60), and (c) is more highly correlated with the objective
performance measures (r=.60 Vs .55-.51) (as described below).
The proposed operationalization of competitive advantage does not focus on a specific project or
product, but it captures the average success along projects and products, which is in contrast with
individual project-level results and products. For example, Clark and Fujimoto (1991) admit that
individual project performance can be influenced by idiosyncratic factors. This operationalization draws
from the studys original theoretical conceptualization and unit of analysis. This is consistent with
Cusamano and Nobeoka (1992) and Ittner and Larcker (1997) who argue that competitive advantage
depends on the performance of multiple products from the work units portfolio of projects, not any
individual project or product.
Process Efficiency. Process efficiency was measured with three items based on Kusunoki et al.
(1998). The operationalization of process efficiency includes time to market and overall development
costs. Time to market is similar to cycle time that focuses on the average development time for the
portfolio of products developed by the NDP work unit (Ittner & Larcker, 1997). Overall cost and time to
market cover a single construct.
Product Effectiveness. Product effectiveness was captured with three items using the validated
scale of Kusunoki et al. (1998). As conceptualized, product effectiveness captures both product quality
and innovation. The measures of product quality and innovativeness were influenced by Sethi (2000) who
focused on the superiority of the product and its perceived novelty, which both span a single variable.

3.1.3.2 Direct Measure


In addition to the direct measurement of competitive advantage, a direct indicator measure with
two items was also used, following the validated scale of Jap (2001). These items asked informants for
their assessment of the overall competitive advantage of their NPD work unit relative to its major

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competitors (Jaworski & Kohli, 1993). The correlation of the indicator variable with the combination of
product effectiveness with process efficiency was .67 (pc.001). The correlation between product
effectiveness and process efficiency was merely .16 (p=.049), which is not necessarily significant in NPD
(Clark, 1989; Ittner & Larcker, 1997). The correlation between the direct indicator measure with product
effectiveness was .52, and with process efficiency was .46 (p<.01).
The use of subjective scales has unique merits on its own right. Since performance outcomes
were assessed in terms of a units major competitors, objective accounting data cannot solicit this level
of specificity on the basis of particular industry or industry group, time horizon, product idiosyncrasies,
and economic conditions (Song & Parry, 1997a). Nevertheless, objective performance measures were
also sought, as described below.

3.1.3.3 Objective Performance Measures


The three objective performance measures assessed in this study are (a) Return on Sales (ROS),
(b) Sales Growth (SG), and (c) Return on Assets (ROA). First, ROS is a common measure of profit
margins, inferred as the ratio of net operating income over sales (Mendelson, 2000). Second, SG
measures the rate of change of sales over the last three years, capturing improvements in market share
over time. Finally, ROA is a common performance indicator, defined as the ratio of net operating income
over average total assets. It measures the extent to which the potential benefits from the profit margins
exceed investments used to achieve these gains (Ittner & Larcker, 1997). The correlations among these
three factors ranged from .49 to .73 (p<.001) (Table 2). A principal components analysis was performed
for these three factors to create the most appropriate measure of performance, following Mendelson
(2000). The principal component showed a single factor formed by these three measures. Thus, a
reasonable measure of objective competitive advantage is the mean of ROS, SG, and ROA. The
correlation between subjective and objective competitive advantage is .60 (pc.001). This is consistent
with prior NPD research, which has shown that managerial assessment of their business units
performance is highly correlated with objective performance indicators (Sethi, 2000; Sethi et al., 2001;
Song & Parry, 1997a; Song et al., 1997).

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Table 2. Correlation Matrix am ong Objective and Subjective Perform ance M easures
Perform ance
M easure

R eturn
on Sales
(ROS)

Sales
G row th
(SG)

RO S
SG
RO S
O BJ
CA
EFFIC
EFFEC
PR O D U CT

1.0
.73
.49
.84
.64
.37
.40
.42

1.0
.56
.74
.49
.33
.38
.40

R eturn
on
Assets
(ROA)

1.0
.81
.58
.36
.43
.47

Objective
Indicators
(OBJ)

Competitive
Advantage
(CA)

Process
Efficiency
(E FFIC )

P roduct
Effectiveness
(EFFEC)

Product
(E FFIC X
EFFEC )

1.0
.60
.30
.34
.41

1.0
.46
.52
.67

1.0
.16
.85

1.0
.88

1.0

The use of self-assessed scales of objective performance may still be criticized for its validity.
The use of self-reported measures of performance in this study is due to the fact that the unit of analysis is
not the entire firm but the NPD work unit, which makes it virtually impossible to retrieve secondary
performance data at the work unit level. To alleviate this concern, wherever possible, data from company
records (ROS, SG, ROA) were matched with the respondents self-reported performance measures.
However, the overall firm performance may not directly reflect the performance of a particular NPD
work unit; nonetheless, it is a reasonable validation check since overall performance is dependent on each
units outcome.16 The weighted correlations among the objective firm performance and self-assessed
work unit measures ranged from .18 to 25 (p<.05). Hence, self-reported performance measures are
deemed satisfactory.

3.1.4 Environmental Turbulence


A two-dimensional (market and technological) environmental typology interpretable in an NPD
context was used to capture environmental turbulence. Market and technological turbulence was
measured with Jaworski and Kohli's (1993), Song and Parry's (1997a), and Moorman and Miner's (1997)
operationalizations that capture the pace of customer and competitor changes and technological

16 Given the variance in work unit size relative to firm size, this correlation was weighted based on the size of the
work unit relative to the size of the entire firm. This was done to account for very small work units whose impact
may be miniscule relative to the entire firm, and for small firms whose performance is predominantly influenced by a
single NPD work unit. The rationale for combining unit- and firm-level performance outcomes comes from the fact
that each NPD work unit contributes to firm performance. For inter-firm NPD work units, the average performance of
the two organizations was used as the proxy. This figure should be used with caution since it is based on only 64
respondents who provided all required information to collect performance indicators from publicly available
secondary sources.

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breakthroughs in an industry, respectively. In addition, an overall environmental turbulence construct was


operationalized with two new items. The correlation between overall turbulence with market turbulence
was .49 and with technological turbulence was .55 (p<.01 level). The correlation between technological
and market turbulence was .44 (all significant p<.01 level).

3.1.5 NPD Functional Competencies


The basic view is that these three functional competencies - technical, marketing, and
managerial - define a representative domain of NPD competencies. Marketing and technical
competencies were each measured with three-items, based on the well-validated scales of Song et al.
(1997). Managerial competence was also measured with three items, following Sethi et al. (2001). The
correlations among these three first-order NPD competencies ranged from .21 to .50, all significant at
p<.05 level. In addition, an overall indicator scale was created for overall NPD competence (Vorhies &
Harker, 2000). The correlation between NPD competence and technical competence was .51, customer
competence .38, and managerial competence .56 (p<01 level). As conceptualized, NPD competence was
viewed as a higher-order factor consisting of three distinct formative factors.

3.1.6 Strategy- Environment Alignment


The basic premise of alignment is that there are several potential effective configurations of
functional competencies, given different environment conditions (Venkatraman, 1989). As
conceptualized, the objective was to empirically examine the degree of adherence to environmental
turbulence and the resource deployment of NPD competencies that is likely to influence performance.
While alignment can also be computed with interaction terms between competencies and environmental
variables,17 such approach is problematic given the number of variables that makes such computation
unreliable. Therefore, a more holistic approach was chosen in this study, which aims to reflect the
simultaneous pattern of interlinks between strategy (NPD competencies) and environmental turbulence.

17 Alignment can also be understood in terms of a pair-wise alignment or interaction among the individual
dimensions that represent the basic constructs.

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Following Venkatraman and Prescott (1990), specifying alignment involves (a) the identification
of distinct environmental variables, (b) the specification of an ideal competence deployment for each
environment, (c) testing the performance effects of environment-strategy alignment using differential
weights, and (d) comparing the ideal profile to a baseline measure. The multivariate deviation of the
functional competencies from the ideal profile examines the degree of misalignment. Based on the
procedure outlined by Venkatraman and Prescott (1990) and Sabherwal and Kirs (1994), the steps
followed are shown in Table 3.

Table 3. S te p s and P ro c ed u re s taken for Calculating E nvironm ent-Strategy A lignm ent

Step Description
1. Distinct
Environmental
Patterns

2. Computing the
Ideal Profile

3. Creating
Differential Weights

4. Accounting for
Baseline Measure

Procedure
The alignment perspective encompasses the basic idea of the contingency view that there
is no one best profile of functional competencies, but the optimal strategy profile depends
on the contextual environmental conditions. Given on the different environmental
turbulence levels (e.g., technical, market, internal), cluster and discriminant analysis was
performed, which resulted in distinct clusters (patterns).
The proposed alignment computation is dependent on the development and justification
of the ideal profile, which is empirically derived (suggested by theoretical rationale).
Deviations from the ideal profile would suggest a negative correlation between such
misalignment and performance. For any given environmental pattern, there is a specific
competence deployment needed for maximum performance. The ideal profile was
calculated using the highest performing organizations, specifically the top 10% of the
organizations based on the perceptual performance outcomes measures. Since the top
10% was removed from the study sample to calculate the ideal profile, the removal of the
bottom 10% was deemed appropriate to avoid a biased sample.
The multi-dimensional ideal profile reflects differential weights for the underlying
functional NPD competencies. This is an acceptable assumption given that having equal
weight across all competencies is generally invalid (Venkatraman & Prescott, 1990). The
weights are derived from the beta weights of the regression equation of NPD
competencies on performance outcomes. The proximity of the ideal competence profile
was computed using differential weights for the three functional competencies. The
differential weights were obtained by the normalized and standardized beta values of the
NPD competence-performance regression (Sabherwal & Chan, 2001).
The development of a baseline model for more reliable hypotheses testing is deemed
appropriate (Sabherwal & Kirs, 1994). The predictive power o f the calculated alignment
measure should be superior to a baseline measure (Venkatraman, 1989); hence, a baseline
measure was also created by calculating a second ideal profile for a single cluster (as
opposed calculating the ideal profile based on two clusters). The baseline measure was
inferior to the calculated ideal profile.

3.1.7 Control Variables


3.1.7.1 Cross-functional Integration
Following Song and Parry (1997a), a three-item scale was used to measure cross-functional
integration in NPD, which refers to the level of unity across NPD functional areas in developing new
products.

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3.1.7.2 Functional Diversity


Functional diversity was operationalized as the number of functional areas represented in the
NPD work unit, following Sethi (2000). The average number of fully involved functional areas was 3.92
(STD=2.74) for Study I, and 4.42 (STD=1.72) for Study II. These figures suggest a considerable
diversity.

3.1.73 NPD Experience


This control variable was operationalized with a single standard item that measured the number
of years the particular work unit had been in place.

3.1.7.4 NPD Knowledge


The mere formation o f cross-functional NPD teams does not guarantee higher performance
(Jassawalla & Sashittal, 1999). The quality and use of the knowledge base matters most (Cooper &
Kleinschmidt, 1996), which refers to existing knowledge resources available in NPD. This construct was
measured with three items that span the work units marketing, technical, and managerial knowledge
(Song & Parry, 1997a).

3.1.7.5 Innovation Type


Innovations lie on a continuum of newness (Sivadas & Dwyer, 2000). First, radical innovations
include pioneering products that represent technological or market breakthroughs and require substantial
effort and investment in R&D. Second, incremental innovations refer to new products. Finally, routine
product engineering represents minor supplements of improvements to existing product lines.
Respondents were asked to select which of these three descriptions of innovation types best described
their NPD work unit.

3.1.7.6 Intra- Vs Inter-Organizational Work Units


Respondents were asked to indicate whether the focal NPD work unit was internal or interorganizational. For inter-organizational units, they were asked to indicate whether their NPD partner was

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a supplier, customer, or competitor (e.g., a horizontal strategic alliance). There were no particular
difference in the results for different types of inter-organizational work units (see also section below on
dyadic responses); hence, no further granulation was deemed necessary. Internal work units were coded
as 0 and inter-organizational as 1. However, for inter-firm units, the degree of collaborative
development was also assessed (see section 3.1.7.7 below).

3.1.7.7 Collaborative Development


For inter-organizational work units, the degree of collaborative development was assessed with
a single measure of the percentage of the overall NPD work that is collaboratively conducted. For internal
NPD work, the assumption is that the development was entirely collaborative within organizational
boundaries.

3.1.7.8 Virtuality (Work Electronically Conducted)


The measure of virtuality (i.e., work conducted over electronic means) was assessed with a
single item that captured the extent to which development was undertaken with the aid of IT (e.g. email,
Internet tools) as opposed to face-to-face communication (Hinds & Mortensen, 2002). The respondents
were asked to assess the percentage of NPD conducted electronically.

3.1.7.9 Additional Control Variables


Other than the conceptually controlled variables, a set of other variables was also controlled for,
including (a) organization size (number of employees and organizational revenues), (b) work unit size
(number of members in the NPD work unit), and (c) whether the respondent was a senior versus a mid
level manager.18

3.1.8 Summary of Measurement Items


Table 4 summarizes the studys principal constructs and measurement items for each construct.

18 Evidence shows that results of NPD studies may differ if the key respondents are senior versus mid-level
managers.

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T able 4. M e a su re m e n t Item s o f P rincipal C o n s tru c ts


1. R e s o u rc e R eco n fig u rab ility
1.0 Resource Reconfigurability Indicator
_________________________________(Galunic and Eisenhardt 2001)______________________________
We can successfully reconfigure our resources to come up with new productive assets.______________________
We can effectively integrate and combine existing resources into novel combinations._____________________
We often engage in resource recombinations to better match our product-market areas and our assets.___________
1.1
Coordination Competence
(Crowston 1991; Mohr and Spekman 1994; Malone and Crowston 1994; Hinds and Mortensen 2002)
__________________________ 1.1.0 Coordination Competence Indicator________________________
We ensure that our work tasks (activities, designs, reports') fit together very well.__________________________
Overall, our group is well coordinated.__________________________________________________________
___________________________________ 1.1.1 Synchronization_________________________________
We ensure that the output of our work is synchronized with the work of others.____________________________
We ensure that the output of our work is of a form useful to others when needed (the right thing at the right time).
_______________________________1.1.2 Resource Allocation_______________________________
We ensure an appropriate allocation of resources (e.g. information, time, reports) within our group._____________
Group members ensure a fair sharing of resources._________________________________________________
___________________________________ 1.1.3 Task Assignment_________________________________
Group members are assigned to tasks commensurate with their task-relevant knowledge and skills._________
We ensure that there is compatibility between group members expertise and work processes.__________________
1.2 Absorptive Capacity
_______ (Cohen and Levinthal 1990; Sobrero and Roberts 2001; Zahra and George 2002; Huber 1991)_____
_____________________________ 1.2.0 Absorptive Capacity Indicator___________________________
We are successful in learning new things within this group.___________________________________________
We are effective in developing new knowledge or insiehts that have the potential to influence product development.
______________________________________1.2.1 Acquisition___________________________________
We are able to identify and acquire internal (e.g. within the group) and external (e.g. market) knowledge._____
We have effective routines to identify, value, and import new information and knowledge.___________________
_____________________________________ 1.2.2 Assimilation___________________________________
We have adeauatej^utinesJo_analYze the information and knowledge obtained.___________________________
We have adequate routines to assimilate new information and knowledge.________________________________
___________________________________ 1.2.3 Transform ation_________________________________
We can successfullyjntegrate our existing knowledge with the new information and knowledge acquired.________
We are effective in transforming existing information into new knowledge._______________________________
_____________________________________ 1.2.4 Exploitation___________________________________
We can successfully_exploit internal and external information and knowledge into concrete applications_________
We are effective in utilizing knowledge into new products.___________________________________________
1.3 Collective Mind
_____________________ (Weick and Roberts 1993; Crowston and Kammerer 1998)___________________
_______________________________ 1.3.0 Collective M ind Indicator_____________________________
We effectively interrelate our activities to manage rapidly changing conditions.____________________________
We collectively manage our tasks to address situational demands.______________________________________
_____________________________________ 1.3.1 Contribution__________________________________
We promptly make our contributions to the group with attention and care.________________________________
We are forthcoming in contributing our individual input to the group.___________________________________
____________________________________ 1.3.2 Representation_________________________________
We have a global understanding of each others tasks and responsibilities.________________________________
We are fully aware who in the group has specialized skills and knowledge relevant to our work._______________
_____________________________________ 1.3.3 Interrelation__________________________________
We carefully interrelate our actions to each other to meet changing conditions.____________________________

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Table 4 (Cont.)
Group members manage to successfully interconnect their activities.__________________________________
1.4 M arket O rientation
__________________________________ (Kohli and Jaworski 1993)______________________________
____________________________1.4.1 Generation of M arket Intelligence_______________________
We frequently scan the environment to identify new business opportunities._____________________________
We spend considerable time reading trade publications and magazines.________________________________
_________________
1.4.2 Dissemination of M arket Intelligence______________________
We are quick to discuss changes in our customers product preferences.________________________________
We periodically review the likely effect of changes in our business environment on customers.______________
We often review our product development efforts to ensure they are in line with what the customers want.______
__________________________1.4.3 Responsiveness to M arket Intelligence_____________________
We are effective in implementing new product ideas.______________________________________________
We devote a lot of time implementing ideas for new products and improving our existing products.___________
We are quick to respond to significant changes in our competitors pricing structures._____________________

2. IT C om petence
_________________________ (Bharadwaj 2000; Sambamurty and Zmud 2000)_____________________
________________________________ 2.0 IT Competence Indicator____________________________
Effectiveness of using IT functionality in the NPD process._________________________________________
Adequateness of utilizing IT tools in the NPD process._____________________________________________
2.1 Effective Use of Project M anagem ent Systems
____________________________(Pinto 2002; Rangaswamy and Lilien 1997)________________________
____________________________ 2.1.1 Scheduling & Time M anagem ent________________________
Adequacy of IT tools to visualize and monitor project status, task lists, and progress of workflows.
Effectively tracking rapidly changing information to update project deliverables in real-time.
________________________________ 2.1.2 Resource M anagem ent____________________________
Accurately providing real-time information on resource availability, usage, and cost.
Effectiveness of IT tools to analyze and measure work, tasks, and resources.
___________________________________ 2.1.3 Task Assignment_______________________________
Quickly prioritizing tasks and keeping deliverables on track to ensure realistic schedules.
Efficiency of IT tools to create parallel workflows so that multiple tasks can be worked on simultaneously.
Representing the true availability of people, skills, and resources to enable appropriate task assignment.
2.2 Effective Use of Knowledge M anagem ent Systems
___________________________________ (Alavi and Leidner 2001)_______________________________
________________________ 2.2.1 Coding, Storing, & Sharing of Knowledge____________________
Effectiveness of IT tools for capturing, compiling, and coding relevant information (product/engineering data).
Project history (e.g., discussions, insights, work data, documents) is readily accessible for reuse.
Consistency of IT tools (e.g., databases, content repositories) to permanently store accurate information over time.
Leveraging IT tools for storing, archiving, retrieving, sharing, and reusing project information and best practices.
____________________________ 2.2.2 Creating Knowledge Directories________________________
Creating online knowledge communities (e.g., virtual discussion forums) focused on new ideas and products.
_____________________________ 2.2.3 Building Knowledge Networks_________________________
Sufficiency of IT tools (e.g., knowledge networks) for locating relevant expertise.
2.3 Effective Use of Cooperative W ork Systems
_______________________________ (Wheeler, Dennis, and Press 1998)___________________________
________________________________ 2.3.1 Knowledge Conveyance____________________________
Effectiveness of IT tools to describe and redefine product structures, configurations, and routines.____________
Adequacy of IT tools (e.g., whiteboards, presentation features') to manipulate the format of our contributions.
______________________________ 2.3.2 Knowledge Presentation____________________________
Adequately using IT tools (e.g., multi-threaded discussions-) to add new meaning to existing knowledge._______

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Table 4 (Cont.)
Effectiveness of IT tools (e.g., transformation functions) to create meaning to information bv changing its form.
________________________________2.3.3 Knowledge Convergence
_____________________
Adequacy of IT tools (e.g. application and desktop sharing) for simultaneously working together in real-time.
Effectiveness of IT tools (e.g. collaborative design tools) for seamlesiyurtujdjMMucLdesii^
________
3. C o m p etitiv e A d v a n ta g e

_____________________ (Bakos and Treacy 1986; Feeny and Ives 1990; Jap 2001)________________
3.0 Competitive Advantage Indicator
_________________________________________ (Jap 2001)___________________________________
Gain strategic advantages in the marketplace.__________________________________________________
Gain a competitive advantage.______________________________________________________________
3.1 Process Efficiency
__________________________________ (Kusunoki et ai. 1998)_____________________________
Overall Development Costs._______________________________________________________________
Overall Efficiencies of NPD Process._________________________________________________________
Accelerated Time-to-Market._________ ______ ______________________________________________
3.2 Product Effectiveness
__________________________________ (Kusunoki et al. 1998)_____________________________
Improvements in Product Quality/Functionality.________________________________________________
Major Innovations in Products as a whole._____________________________________________________
Creation of New Product Concepts.__________________________________________________________
4. NPD F u n ctio n al C o m p e te n c e
4.0_________________________________ NPD Competence Indicator
__________________________________ (Vorhies and Harker 2000)_____________________________
We do a remarkable job of developing new products._____________________________________________
This product development group gives us an edge in the market.____________________________________
4.1 Technical Competence
__________________________________ (Song and Parry 1997)_____________________________
Evaluating the technical feasibility of developing new products with continuously changing features.________
Recurrently evaluating tests to determine basic performance against shifting technical specifications.________
Frequently executing prototypes or sample product testing.________________________________________
4.2 Custom er Competence
__________________________________ (Song and Parry 1997)_____________________________
Frequently determining market characteristics and trends._________________________________________
Regularly appraising competitors and their products - both existing and potential._______________________
Executing several test-marketing programs in line with commercialization plans.________________________
4.3 M anagerial Competence
______________________________________ (Sethi 2000)_________________________________
Management effectively monitors the progress of this NPD group.___________________________________
Management is actively involved in activities at the working level.__________________________________
Management effectively administers relevant tasks and functions.___________________________________
5. E n v iro n m en tal T u rb u le n c e

5.0

Environmental Turbulence Indicator


(New Scale)________________

The environment in our product area is continuously changing._______ ____________


Environmental changes in our industry are very difficult to forecast._______________

5.1 Technological Turbulence


____________________________________ (Kohli and Jaworski 1993)_________
The technology in this product area is changing_rapidly._________________________
Technological breakthroughs provide big opportunities in this product area.________

5.2

Market Turbulence

___________________________(Kohli and Jaworski 1993; Song and Parry 1997)

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Table 4 (Cont.)
In our kind of business, customers product preferences change a lot over time.
Marketing practices in our product area are constantly changing.____________
NewjproductJntr^
are very frequent in this market.________________
There are many competitors in this market.______________________________

6. Control V ariables

6.1

Cross Functional Integration


(Song and Parry 1997)_______________________________

There are frequent interactions between our cross-functional NPD group._____________________________________


The NPD process is truly a cross functional effort.________________________________________________________

_________________________________

6.2 Functional Diversity


(Sethi_2000)________________________________

How many functional areas (e.g., R&D, marketing) are represented in this NPD group?

_____________________________

_____________________

6.3 NPD Knowledge


(Song and Parry 1997)________________________________

Our R&D. engineering, and technical skills, knowledge, and expertise were more than adequate._________________
Our marketing research skills, knowledge, and expertise were more than adequate._____________________________
Our managerial skills, experience, and resources were more than adequate.____________________________________
The overall skills, knowledge, and resources available in this partnership were more than adequate._______________

6.4 Experience in NPD


__________________________________ (Work Unit Age)_________________________________
How long has this NPD group been in place?

years._____________________________________________

6.5 Innovation Type


______________________________________ (Sethi_2000)_____________________________________
Basic research that lays the basic foundations for future product development effort.____________________________
Applied work to develop specific, clearly_defined products to fulfill immediate goals and strategic directions.______
Routine engineering for continuous improvement of existing products and processes.___________________________

______________________ 6.6 Intra- Vs Inter-organizational Work Units_____________________


Our NPD partner is a (please circle one): a) supplier, b) customer, cl internal unit. d~) other (please specify):________

____________________________ 6.7 Collaborative_Development___________________________


What percent o f the overall product development work in this NPD partnership is collaboratively conducted?

___________________________________ 6.8_Virtuality_________________________________
What percentage of this collaboration is conducted over electronic means (e.g., e-mail, online data, Internet tools,
virtual teams) as opposed to personal, face-to-face interactions?________%___________________________________

_____________________________ 6.9 Organizational_Variables___________________________


Estimated total annual revenues (20011:
_______________________________________________________
Proportion o f sales spent on R&D (2001)_______ %__________________________________________________________
Number of employees:
________________________________________________________________________
Industry segment/Product domain:_____________________________________________________ ________________

3.2 Pilot Tests


In preparation for large-scale survey data collection, all measurement items and the survey
instrument were pretested by two panels, one academic and one professional (practitioners).

3.2.1 Academic Panel


The first academic panel consisted of five advanced doctoral students who reviewed the
preliminary instrument for clarity and clearness. This step also included card-sorting exercises to match

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items to construct definitions, following the procedure of Moore and Benbasat (1991). Given the large
number of items, this exercise only took place for the new scales (e.g., dynamic capabilities, IT
competence, performance outcomes). The judges were asked to sort the measurement items into distinct
categories, first not having told about the underlying constructs, and second by indicating the underlying
constructs and asking them to match the items to the constructs.
The second academic panel consisted of four professors with expertise in NPD from prominent
business and engineering schools in the USA. They were asked to critically evaluate the items from the
standpoint of domain representativeness, item specificity, and clarity of construction (Jaworski & Kohli,
1993). The same panel reevaluated the revised survey instrument.

3.2.2 Professional Panel


The professional panel consisted of senior NPD executives, managers, and engineers. The
measurement adequacy of the proposed measures was first examined through a series of informal phone
interviews with ten NPD managers who were asked to evaluate whether the proposed items corresponded
to their own NPD work unit, and the ease by which they could relate to the measurement items. These
interviews ascertained that the managers had a correct interpretation o f the items in the survey instrument.
In particular to the measures of IT competence, a technical panel consisting of ten managers of NPD
software development organizations reviewed the respective measurement items. Finally, the instrument
was pretested by personally administering it to thirteen NPD managers to verify comprehensiveness,
relevance, and the suitability of the terminology used, the clarity of the instructions, and the response
formats. These detailed interviews assured that there was no ambiguity in any measures.
Following these steps, the final instrument was progressively shortened, clarified, and refined.
At this point, no particular problems appeared to exist, and the final instrument was deemed appropriate
by both panels.

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4. Survey Adm inistration


Two independent surveys were conducted using the same measurement instrument in the two
samples. The data collection procedure was identical in both studies.

4.1 Key Respondents


Key informant methodology relies on a single participant to provide information about a
collective setting. Key informants are deemed especially qualified because o f their position, experience,
and specialized knowledge (Venkatraman, 1989). Following key informant methodology in NPD (Sethi,
2000; Sethi et al., 2001), the goal was to identify people who would be highly knowledgeable about NPD
work units (Cini, Moreland, & Levine, 1993). In most cases, organizations have specific NPD managers
that exclusively monitor the activities of a particular NPD initiative. Most important, the NPD literature
has long employed NPD managers as key respondents (Moorman & Miner, 1997; Sethi, 2000; Sethi et
al., 2001; Song & Parry, 1997a). In fact, the field interviews confirmed that NPD managers are
knowledgeable to respond about the activities of the entire NPD work unit. In this study, the selected key
respondents were NPD managers who primarily manage or coordinate internal or external NPD work
units.19Nonetheless, to assure a true collective response, the survey instructions explicitly requested that
the NPD manager obtained input from other unit members when completing the questionnaire.

4.2 Sampling Frame


Study I used a sample of 121 and Study II used 59 NPD managers from the participants of two
practitioners conferences on NPD, as described in detail below.

4.2.1 Study I Sample


For Study I, a list of NPD managers was constituted based on the list of 554 participants of the
2002 Product D evelopm ent and Management Association (PDM A) annual conference. Respondents were

19 Even if managers may belong to a particular functional area (e.g., marketing, engineering), the universal nature of
the questionnaire allowed collecting responses from NPD managers from multiple functions. In fact, the survey
pretests included managers from multiple disciplines, and nobody seemed to have any advantage or disadvantage
when answering the survey questions. Therefore, the key informants in this study were NPD managers that belonged
to various functional areas as long as they had a global understanding of the work units cross-functional activities.

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selected after a screening procedure that examined the suitability o f each respondent in participating in
the study. From the initial sample of potential respondents, I first eliminated 128 participants whose
companies were not involved with NPD,20 and whose job titles did not closely correspond to the NPD
function.21 The list was further refined by personally contacting the remaining participants by telephone
or email, describing the study, inquiring whether the person has been involved as a manager of NPD work
units, and if deemed as appropriate respondents, requesting their participation. Following this procedure,
the final list for Study I contained a total of 386 participants.

4.2.2 Study II Sample


The second sample of NPD managers was drawn from the list of 161 participants of the 2003
Roundtable Management conference on collaborative product development. Using the same sample
refinement procedure as in Study I, a total of 121 participants were deemed appropriate to participate in
the cross-validation study.

4.3 Data Collection


For both studies, I personally contacted the screened sample of NPD managers by telephone or
email, and I invited them to complete a questionnaire that was emailed to them.22 Invitation e-mails were
sent to all selected participants, explaining the purpose of the study and requesting their participation. The
email body provided a non-disclosure agreement, assuring that the responses will be treated
confidentially and the results will only be reported in aggregate. I also highlighted the significance of the
study and the importance of each response. The respondents were asked to click on the URL link
provided in the e-mail message, which linked to an online survey instrument. The respondents were
offered as incentive a customized report that summarized the results of the survey and compared their
work unit with the overall results; over 90% of the respondents in both studies requested this report.

20 Each company name was checked with popular company lists (e.g. Compustat), and other practical means (e.g.,
corporate website) to assure that the company has been developing new products.
21 Inappropriate job functions included consultants, professors, top-level executives, and software sales associates.
22 This communication resulted in a survey invitation if the person was deemed as a proper participant.

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118

The respondents were asked to self-select a specific NPD work unit that they have been
administering and felt comfortable describing its characteristics, abilities, and performance outcomes.
Given that many NPD managers often supervise more than one NPD work unit, there was a concern that
the respondents would select the most successful one (social desirability bias).23 Respondents were asked
to focus their attention on a work unit that they are mostly familiar with, and not a successful, failed, or
typical one. Even if inter-firm NPD alliances are becoming commonplace, they still represent only a
small portion of all NPD initiatives. Since I wanted to collect roughly equal number of intra- and interorganizational NPD work units, given a choice, the respondents were asked to select an external NPD
unit. This step helped collect 56% the responses about inter-firm work units.24

4.3.1 Follow Up Diagnostics


Through a follow-up e-mail, all respondents were personally thanked for their help. This
communication also aimed at examining the validity of the survey responses, following the procedure of
Song and Parry (1997a). All respondents indicated their knowledgeability about all aspects of their work
units abilities, and performance. Most respondents indicated that they had consulted with other members
when completing the survey questionnaire, which alleviated fears of single response bias. Finally, several
respondents expressed the need of their own NPD work units to improve some o f the abilities indicated in
the survey instrument, signifying the relevance of the items to their own practical experiences.
Although several steps had already taken to ensure proper selection of key informants, a formal
check was also administered as part of the questionnaire (Kumar, Scheer, & Steenkamp, 1995).
Specifically, one item assessed the respondents familiarity with his or her work units practices. The
mean score for informant quality for each item was 4.31 (STD=0.80) in Study I and 4.30 (STD=0.90) in
Study II on a five-point scale, while all respondents scored above 4. Therefore, all respondents were
classified as adequately knowledgeable, and all responses were retained.

23 To address social desirability bias, the performance outcomes of all work units were examined. The mean of the
performance outcomes was 3.44 (5-point scale), while the standard deviation was 0.78. Given that the mean was
roughly in the middle of the scale and the standard deviation was substantial, there is no major concern that the
respondents chose to report about their most successful work units (Sethi, 2000).
24 For Study I, 32% were suppliers, 19% customers, and 4% were alliance partners; 45% were internal work units.
For Study II, 27% were suppliers, 21% were customers, and 10% were alliance partners; 42% were internal units.

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119

4.4 Response Characteristics


4.4.1 Response Rate
In study I, of the 386 potential respondents, 44 could not be contacted, 12 respondents indicated
that formal company policy forbids their participation in surveys, and 15 of the invitees indicated that
they were not qualified to participate in the study.25 Following two e-mail and a telephone reminders, 121
completed responses were received (39% response rate). In Study II, out o f the 161 potential participants,
25 were unreachable, and 4 indicated inability to respond. Following the same reminders as in Study I, a
total of 59 responses were finally obtained for a response rate of 43%.
The response rate in both studies is much higher than most survey studies because (a) personal
communication was actively sought with the participants, (b) the study was endorsed by the organizers
and promoted by the author during the two conferences, (c) the author actively participated in these two
conferences and established business contacts, and (d) several completed responses through paper
questionnaires were also collected during the two conferences by some attendees.26

4.4.2 Non Response Bias


Non-response bias was assessed by verifying that early and late respondents did not significantly
differ in their characteristics (e.g., size, revenues) and responses on principal constructs (Armstrong &
Overton, 1976). Early respondents were identified by selecting those that responded during the first two
weeks, against those responding later. In Study I, 42% were classified as early respondents; in Study II,
early respondents were 40% of the total. All possible t-test comparisons between the means of the two
groups in the two studies showed insignificant differences (p<0.1 level). Therefore, the risk of non
response bias to this study's results is limited.

25 The most common reasons were short tenure with current company, minimal involvement with managing a NPD
work unit, and recent change in job responsibilities. According to some of these participants, the survey items were
detailed enough for unfamiliar managers to effectively respond, confirming the studys expectations.
26 A total of 16 (9% of total) completed paper questionnaires were received for Study I and 10 (8% of total) for Study
II during the duration of the conferences. The responses from the paper instruments were similar to the online
responses (e.g., demographics, descriptive statistics, correlation coefficients), and they were thus aggregated.

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4.4.3 Dyadic Data


Since dyadic data from inter-organizational NPD work units (collected from managers from both
firms) would have been desirable, if the participants selected an inter-firm unit, they were requested to
provide the contact information of a manager from the partner organization. The identified managers
were then contacted with the same procedure as the regular data collection. From the 64 inter-firm work
units in Study 1, 28 respondents provided the requested information, and 17 dyadic responses were
obtained (61% response rate). From the 35 potential inter-firm units in Study II, 19 contact names were
received, and 11 matched pairs were finally obtained (58% response rate).
Data obtained by two respondents for a single NPD work unit were analyzed separately to assess
the degree of congruence between the two informants (Jaworski & Kohli, 1993). The differences in the
assessment of the principal constructs were first computed. The average absolute differences for all
principal constructs were less than 5%, indicating lack of a systematic difference in either direction
between the two respondents. Second, for each construct, the correlation between the two responses was
computed. The average correlation was 0.63 (range=0.17-0.87). Even if there was no perfect correlation
between the two respondents, the inter-rater reliability (r=.71) was quite high. These results indicate that
there is no systematic bias in the reports of the two informants, and their responses were averaged to
derive a single score for each inter-firm NPD work unit. Given the high degree of congruence between
the matched pairs, a single response accurately represents a work unit.

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CHAPTER 5: DATA ANALYSIS AND RESULTS


The method of modeling used is the Partial Least Square (PLS) technique. PLS is a latent
structural equations modeling technique that uses a component-based approach to estimation (Lohmoller,
1989). PLS is better suited for explaining complex relationships (Fomell & Bookstein, 1982; Fomell,
Lorange, & Roos, 1990), especially in large models when the importance shifts from individual variables
to groups of variables and aggregate parameters (Wold, 1990). Wold argues that PLS is the best method
for large, complex models with latent variables (p. 590). This is because PLS places minimal demands on
sample size and residual distributions. Finally, PLS has a key advantage over regression or covariancebased methods, such as LISREL or EQS because PLS assumes that all observed variance is useful and
needs to be explained. PLS employs a principal components technique to maximize the variance
explained without assuming random error variance. This results in explaining a large percentage of the
variance in the observed variables. Because of the large number of principal constructs relative to the
sample size, PLS was deemed more appropriate and PLS-Graph Version 3.0 was employed.
PLS allows to both specify the relationships among the principal construct and their underlying
items,27 resulting in a simultaneous analysis of both whether the hypothesized relationships at the
theoretical level are empirically true, and also how well the measures relate to each construct. The ability
to include multiple measures for each construct provides more accurate estimates of the paths among
constructs, which are typically downward biased by measurement error when applying multiple
regression analysis (Chin, 1998).
Data analysis uses a combination of a measurement model and a path (structural equation)
model. The psychometric properties of all scales were first assessed through reliability (internal
consistency) and confirmatory factor analysis (convergent and discriminant validity). The structural
relationships were then examined, after calculating second-order factors and strategy-environment
alignment.

27 The weights of the underlying items for the constructs are estimated by the PLS algorithm in an iterative method
based on Wolds (1985) theory of fixed point estimation of structural equation models with unobservable variables.

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122

1. Respondent Characteristics
Some key characteristics o f the respondents from both studies are described below, such as
demographics and descriptive statistics of key variables.

1.1 Demographics
The industries in the sample from both studies consist o f a wide range of industries. The
majority o f the respondents were from the high-tech industry (14%), manufacturing (12%), medical
devices (11%), consumer goods (8%), telecommunications (7%), and chemical (5%) industries. In
addition, multiple responses that represented less than 5% came from the electronics, industrial and
construction equipment, automotive, aerospace, financial services, and food industries. Single responses
came from the insurance, pharmaceuticals, publishing, entertainment, energy, construction, and defense
industries, among others.
Over 80% of the respondents identified their positions as that of a NPD manager, director, or
leader, and their role as managing, leading, or coordinating NPD projects. About 10% indicated an
executive position (e.g., R&D executive or Vice President of NPD). Other roles included chief scientists,
engineers, and researchers.
The purpose of the NPD work units was mostly that of applied development of new products
(68%), followed by basic research (23%) and routine engineering of existing products (9%). These
numbers are similar in both studies. All demographic characteristics are shown in Table 5.

Table 5. R e sp o n d e n ts D em ographic C h aracteristics


Demographics

Mean

Study I
Median

STD

Mean

3.70
67

4 .2 9
222

3.79

1,560
1.8

3,550
4.93

3.3

1.7

5.3
5.8
4.9

2.9
1.9
4.4

2.6
1.8
4.2

5.4
4.8

14.1

8.6

8.0

7.8

W ork U nit A ge

4.08

Work U n it S ize (Group M em bers)


O rganizational S ize (E m p loyees)
Organizational Size ($ B R evenues)

93
2,270
2.5

Return on Sales (%)


Sales Growth (%)
Return on A ssets (%)

3.6
2.2
4.7

3.2
2.0
4.4

Organizational R & D /Sales (%)

10.6

8.7

122
3,6 6 0

Study I I
Median
3.45
72
1,620

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STD
4.68
291
4,3 4 4
6.12

5.0

123

1.2 Descriptive Statistics


Descriptive statistics for the principal constructs for each study are shown in Table 6. A rule was
set that outliers would be removed if the absolute value o f the residual exceeded three (Ittner & Larcker,
1997). However, none of the observations was removed by this procedure. Subsequently, all variables
were converted to a common scale by standardizing each item to zero mean and its standard deviation at
unity.

1.3 Aggregate Data from Studies 1&2


As shown in Tables 5 and 6, both demographic characteristics and descriptive statistics are
similar across the respondents of both studies. In addition, using Chow's (1960) test statistic28 and Wilks
lambda,29 the results of all three groups (Study I, II, and I&II combined) were statistically non-separable.
Thus, the data were pooled together for a single statistical analysis (a total of 180 responses), including
measurement and test of the structural model. To double check, I performed data analysis on each sample
individually and got virtually identical results, as shown in Figure 9 below.

2. M easurem ent Validation


All measures were subjected to a validation process involving reliability, and convergent and
discriminant validity tests (Bagozzi & Phillips, 1982; Churchill, 1979; Gerbing & Anderson, 1988).30

2.1 Reliability
Reliability of all measurement scales was assessed using both Cronbachs alpha and internal
consistency. The internal consistency was calculated by the composite reliability scores31 (Werts, Linn, &

28 The Chow test is a statistical test for structural change, which determines whether the coefficients in a regression
model are the same in separate sub-samples. The Chow test is an application of the F-test, and it requires the sum of
squared errors from three regressions - one for each sample period and one for the pooled data. Since PLS was used
to test the model, the PLS coefficients were used to perform the test, which are equivalent to regression coefficients.
29 The Wilk's lambda criterion measures the difference between groups.
30 To assess the psychometric properties of all measures, the measurement model only included first order factors in
order to assess the efficacy of the second-order factor model based on the structure of the first-order factors.
31 The composite reliability (internal consistency) score is calculated by (5At)2/ [(Z/a)2+ LiVartS])], where /U is the
indicator loading, and Var(p.[)=l -/a2.

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124

Joreskog, 1974). Cronbachs alpha coefficients and internal consistencies are considered acceptable if
they exceed .70 (Bagozzi & Edwards, 1998; Fomell & Larcker, 1981). Composite reliabilities are all
above .70, signifying tolerable reliability (Tables 7).32

Table 6. D escriptive S ta tistics for Principal C o n stru c ts


Principal Construct

Study I
Mean (STD)

Study II
Mean (STD)

R esource R econfigurability

3 .5 6 (0.80)

3.61 (0.86)

Coordination C om petence

3.73 (0.74)
3.58 (0.75)
3.52 (0.85)

3.71 (0.84)
3 .5 2 (0 .9 1 )
3.61 (0.90)
3 .3 0 (1 .0 2 )

A bsorptive Capacity
C ollective M ind
M arket Orientation

3 .1 5 (0 .9 3 )

IT C om petence
Project/R esource M anagem ent System s
K n ow led ge M anagem ent System s

2 .5 4 (1 .2 6 )
2 .5 7 (1 .1 1 )
2 .6 8 (1 .4 2 )

C ooperative W ork System s

2.43 (1 .2 6 )

2 .5 0 (1 .2 2 )

C om petitive A dvantage
Process E fficien cy

1 4 .1 2 (3 .5 7 )
3 .2 9 (0.74)

14.91 (3.80)
3.41 (0.79)

Product E ffectiveness
E nvironm ental Turbulence
T echn ological Turbulence

3.51 (0 .8 0 )
3 .1 2 (1 .2 9 )

3.72 (0.84)
3 .4 4 (1 .2 1 )

3 .1 9 (1 .3 6 )

M arket Turbulence
N P D C om petence

2 .9 4 (1 .2 5 )
3 .1 7 (0 .9 8 )

3.51 (1.30)
3.21 (1.16)

Custom er C om petence
T echnical C om petence

3 .0 5 (1 .0 2 )
3.31 (0.89)

3.60 (0.77)

M anagerial C om petence
Cross-Functional Integration
N um ber o f Functional Areas

3 .1 5 (1 .0 3 )
3 .7 8 (0 .9 1 )
3.92 (2.74)

3 .3 4 (1 .0 7 )
4 .2 0 (0.85)
4 .4 2 (1 .7 2 )

N P D K now ledge
Virtuality

3 .5 0 (0.94)
50.7% (29.5% )

3.55 (0.90)
52.9% (26.1% )

2.51 (1.20)
2 .6 4 (1 .1 9 )
2 .6 0 (1 .3 2 )

3.51 (1.00)
3 .2 0 (1 .0 4 )

Table 7. C om posite Reliabilities for Multi-Item Principal C o n stru cts

Principal Construct

Cronbachs alpha

Internal Consistency

Resource R econfigurability
Coordination C om petence

0.89
0.80

0.92
0.81

A bsorptive C apacity
C o llectiv e M ind

0.71
0 .7 6

0.73
0.78

M arket Orientation

0.75
0.94

0.76
0.95

IT C om petence
Project/R esource M anagem ent System s

0.89

0 .9 0

K now ledge M anagem ent System s


C ooperative W ork System s

0.88
0.90

0.90
0.92

C om petitive A dvantage

0.88

0.91

Process E fficien cy
Product E ffectiveness
Environm ental Turbulence
T echn ological Turbulence
Market Turbulence
N P D C om petence
Custom er C om petence

0.77
0.89
0.73
0.81
0.80
0.81
0 .7 9
0.81
0 .8 4

0 .8 0
0.93
0.75
0.83
0.82
0.83
0 .8 0

T echnical C om petence
M anagerial C om petence

0.83
0.86

32 Following Kumar et al. (1995), the reliability of the second-order factors were examined with an approximate
procedure that measures the approximate loadings of the items on the second-order factor by multiplying the
standardized first-order loadings with the standardized second-order loading.

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125

2.2 Discriminant and Convergent Validity


According to Chin (1998), convergent and discriminant validity is inferred when the PLS
indicators (a) load much higher on their hypothesized factor than on other factors (own-loadings are
higher than cross-loadings), and (b) when the square root of each constructs Average Variance Extracted
(AVE) is larger than its correlations with other constructs (i.e. the AVE shared between the construct and
its indicators is larger than the AVE shared between the construct and other constructs). Moreover,
discriminant and convergent validity of the principal constructs was also examined with the confirmatory
factor analysis procedure in PLS.33 As shown in Table 8, all items loaded well on their corresponding
factors, which are much higher than all cross loadings, signifying that all measures demonstrate adequate
convergent and discriminant validity. In addition, as shown in Table 9, the square root of the AVE is
much larger than all other cross-correlations.34 The AVEs were all above 0.75, indicating that the
variance explained by the respective construct is larger than the measurement error variance (Fomell &
Bookstein, 1982).35 Table 9 also reports the Pearson correlations among the studys principal constructs.
These results suggest that our constructs exhibit good psychometric properties and that the dimensions of
the proposed second order constructs are distinct from each other and from the other variables in the
structural model.
The extent of common method bias was assessed using Harmans one-factor test (Podsakoff and
Organ 1986). For the CFA test (Table 8), each of the principal constructs explains roughly equal variance,
indicating that the data do not suffer from common method variance. Finally, multicollinearity was not a
serious concern since all checks (eigenanalysis, tolerance values, Variance Inflation Factors) did not
suggest dropping any variable.

33 Confirmatory factor analysis in PLS was performed in two steps. First, the own-construct loadings were directly
obtained from the PLS program. Second, the cross-loadings were obtained by calculating the correlation o f the
weighted sum o f the own-construct indicators (standardized latent variable scores) with all other indicators (Agarwal
& Karahanna, 2000).
34 Discriminant validity is inferred when the AVE for each construct is greater than the squared correlation between
constructs.
35 Discriminant validity is essentially inferred when each constructs AVE is greater than the squared correlation
between constructs. The AVE attests that the variance explained by a construct is larger than its measurement error
variance (Fomell & Bookstein, 1982).

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126

Table 8. PLS Confirm atory F actor A nalysis for D iscrim inant and C onvergent Validity
CC1
CC2
CC3
CC4
CC5
CC6
AC1
AC2
AC3
AC4
AC5
AC6
AC7
AC8
CM1
CM2
CM3
CM4
CM5
CM6
M Ol
M 02
M 03
M 04
M 05
M 06
PRMS1
PRMS2
PRMS3
PRMS4
PRMS5
PRMS6
PRMS7
KMS1
KMS2
KMS3
KMS4
KMS5
KMS6
CWS1
CWS2
CWS3
CWS4
CWS5
CWS6
EFF1
EFF2
EFF3
PE I
PE2
PE3
MT1
MT2
MT3
MT4
TT1
TT2
M CI
MC2
MC3
TCI
TC2
TC3
GC1
GC2
GC3

CC
.732
.758
.753
.777
.755
.713
.241
.190
.272
.142
.164
.265
.280
.276
.105
.144
.070
.079
.146
.181
.215
.240
.313
.210
.273
.289
-.034
.032
-.042
.067
-.093
.134
.136
.122
.199
.139
.144
.278
.343
.145
.211
.188
.225
.098
.183
.087
.087
.021
-.202
-.135
-.232
.123
-.176
.018
.141
.141
.138
.257
.366
.313
.225
.121
.123
.010
.022
.110

AC
.367
.387
.252
.322
.174
.257
.648
.656
.719
.720
.698
.747
.692
.654
.288
.304
.230
.281
.320
.270
.246
.165
.253
.134
.131
.124
.165
.133
.129
.133
.229
.261
.155
.167
.142
.168
.122
.059
.201
.293
.170
.186
.109
-.092
-.017
.003
.061
-.063
.040
.022
.224
-.162
-.125
.176
.221
.215
.240
.213
.210
.173
.289
.364
.280
.176
.205
.179

CM
.257
.311
.310
.331
.266
.268
.176
.191
.142
.151
.128
.194
.130
.194
.824
.802
.809
.807
.838
.895
.134
.211
.367
.284
.167
.107
.071
.012
.045
.005
.056
.032
.053
.261
.248
.214
.232
.361
.306
.096
.034

.011
.002
.135
.232
-.223
-.276
-.164
.099
.085
.036
.331
.335
.320
.270
.246
.165
.253
.134
.131
.124
.147
.292
.354
.288
.281

MO
.290
.201
.336
.357
.360
.379
.143
.112
.285
.374
.204
.306
.251
.232
.198
.105
.170
.179
.225
.335
.781
.747
.723
.750
.700
.765
.105
.138
.178
.200
.131
.130
.118
.041
.080
.085
.072
.137
.041
.067
.147
.071
.040
.022
.224
.162
.125
.074
.079
.053
.088
.167
.150
.138
.195
.234
.311
.367
.284
.267
.307
.194
.200
.134
.124
.177

PR M S
.033
.021
.045
.161
.141
.009
.156
.207
.223
.214
.206
.225
.169
.193
.243
.115
.162
.061
.152
-.006
.111
.153
.137
.031
.152
.142
.678
.680
.692
.648
.660
.618
.642
.322
.317
.356
.321
.344
.346
-.032
-.034
.029
.099
.085
.036
.131
.035
.137
.124
.190
.177
.202
.135
.125
.135
.081
.147
.023
.050
-.100
.105
-.006
-.051
.132
.148
.079

KMS
.056
.059
.076
.074
.076
.027
.224
.096
.183
.173
.077
.023
.205
.104
.050
.253
.148
.135
.099
.058
.393
.256
.140
.110
-.191
.220
.050
.306
.264
.284
-.356
.326
.250
.778
.769
.731
.719
.714
.776
.114
.189
.320
.292
.313
.250
.134
.066
.129
.245
.167
.060
.040
.022
.152
-.006
.111
.153
.137
.031
.152
-.242
-.225
-.169
.093
.093
.061

cw s
.122
.154
.170
.163
.155
.199
.066
.064
.076
.053
.109
.042
.095
.044
-.004
.298
.283
.108
.285
.268
.034
.022
.093
.012
.105
.144
.325
-.014
.012
.077
.114
.038
.059

.111
.114
.103
.177
.109
.213
.673
.602
.730
.662
.727
.616
-.003
-.019
.078
.092
.196
.030
.199
.085
.099
.058
.393
.256
.140
.110
-.191
.220
.123
.205
.104
.050
.135

EFF
.030
.154
.128
.125
.055
.050
.140
.205
.069
.049
.092
.080
.285
.216
.187
.108
.036
.115
.110
.165
.290
.095
.172
.143
.132
.108
.050
.306
.264
.084
-.056
.226
.050
.178
.069
.131
.119
.114
.076
.114
.189
.120
.292
.213
.250
.834
.766
.829
.277
.283
-.046
.079
.053
.085
.068
.034
.022
.093
.012
.105
.144
.042
.295
.244
.304
.308

PE
.179
.176
.113
.189
.269
-.025
.184
-.045
.126
.064
.181
.095
-.018

.111
.315
.218
.133
.123
.189
.258
.209
.043
.055
.177
.116
-.212
.325
-.014
.012
.077
.114
.038
.059

.111
.114
.103
.077
.109
.213
.273
.202
.230
.162
.227
.216
.285
.274
.204
.806
.751
.832
.248
.235
.210
.279
.125
.135
.081
.047
.023
.050
.080
.285
.216
.187
.115

MT
-.039
.122
.047
.013
.006
.019
.018
.034
.055
.119
.122
.104
.114
.246
-.088
.076
.173
.139
.272
.247
.278
.320
.107
.053
.064
.118
.012
.083
.087
.069
.089
-.055
-.010
.137
.114
.094
.107
.121
.123
.218
.294
.354
-.055
.019
.027
.323
.314
.306
.225
.169
.093
.793
.815
.762
.861
-.152
-.006

-.111
.153
.137
.031
.195
-.018
.211
.315
.323

TT
.058
-.099
-.009
.045
-.019
.073
.299
.264
.042
.141
.187
.086
-.022
.221
-.083
.136
.118
-.006
.389
.385
.223
.206
.196
.217
.213
.211
.072
.034
.049
.174
.191
-.031
-.052
.067
.082
.105
.110
.039
.074
.277
.183
.104
-.009
.050
.105
.183
.173
.177
.223
.205
.104
.050
.253
.148
.135
.799
.758
.293
.256
.240
.110
.104
.114
.246
-.088
.139

MC
.052
-.029
.074
.027
.110
-.049
.063
.105
.091
.023
.093
.005
-.009
-.146
.230
.363
-.037
.227
.025
.103
.060
.217
.228
.232
.251
.221
.213
-.059
-.016
.216
.078
.133
.037
.085
.054
.024
.079
.101
.094
.037
-.010
-.027
.180
.095
.272
.076
.053
.109
.142
.195
.144
.304
.298
.083
.108
.085
.068
.834
.822
.793
.012
.086
-.122
-.121
-.083
-.006

TC
-.168
-.238
.085
-.045
.172
.186
-.230
-.202
.046
.030
.063
-.237
-.227
.123
.183
.255
.210
.122
.164
.134
.036
.088
.032
.023
.202
.196
.014
.188
.181
-.047
-.076
-.062
.154
.135
.003
.024
.020
.055
.017
.094
.010
.005
-.012
.122
.106
.069
.049
.092
.080
.285
.216
.687
.708
.036
.115
.110
.165
.290
.095
.172
.843
.805
.809
-.146
.230
.227

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GC
.083
.087
.069
.089
-.055
-.010
.137
.114
.094
.107
.121
.123
.218
.294
.354
.043
.052
-.024
.022
.022
.129
.110
-.017
-.029
.040
.093
-.002
.043
.052
-.024
.022
.022
.129
.110
-.017
-.029
.040
.093
.110
.353
.019
-.258
.261
.220
.068
.126
.064
.181
.095
-.018

.111
.315
.218
.233
.223
.189
.258
.209
.043
.055
.049
.092
.080
.685
.656
.687

127

Table 9. C orrelation Matrix and A verage V ariance Extracted for Multi-item C o n stru c ts
RR
CC
AC
CM
MO
ITC
PS
KS
CS
CA
EF
PE
MT
TT
CC
TC
GC

RR
.83
.57
.51
.50
.50
.43
.44
.40
.41
.42
.32
.55
.16
.03
.36
.31
.37

CC

AC

CM

MO

ITC

PS

KS

CS

CA

EF

PE

MT

TT

CC

TC

GC

.77
.63
.77
.69
.16
.17
.14
.10
.41
.39
.38
.05
.16
.08
.12
.44

.75
.59
.66
.29
.20
.33
.26
.39
.38
.46
.06
.10
.12
.35
.53

.80
.68
.16
.17
.20
.06
.38
.41
.36
.03
.04
.12
.35
.43

.77
.07
.07
.03
.09
.41
.25
.51
.04
.02
.06
.14
.41

.94
.89
.91
.89
.22
.21
.13
.12
.24
.25
.35
.24

.90
.70
.66
.26
.25
.14
.09
.30
.23
.28
.36

.85
.74
.12
.15
.12
.11
.20
.39
.45
.30

.79
.20
.16
.05
.11
.14
.24
.15
.37

.92
.40
.41
.30
.30
.37
.32
.39

.81
.11
.00
.01
.04
.37
.51

.90
.04
.13
.16
.09
.30

.84
.55
.31
.31
.05

.80
.09
.14
.12

.85
.31
.13

.78
.42

.87

Items on the m atrix diagonal represent the average variance extracted between the constructs and their own measures.
RR: Resource R econfigurability; CC: Coordination C om petence; AC: A bsorptive Capacity; CM: C o llective M ind; MO: Market
Orientation; ITC: IT C om petence; PS: Project M anagem ent System s; KS: K now ledge M anagem ent System s; CS: C ooperative
Work System s; CA: C om petitive A dvantage; EF: P rocess E fficiency; PE: Process E ffectiveness; MT: Market Turbulence; TT:
T echn ological Turbulence; CC: Custom er C om petence; TC: T echnical C om petence; GC: M anagerial C om petence.

3. Second-Order Structures
In addition to the reliability, convergent, and discriminant validity of the components o f the
higher-order structures, the dimensionality o f their construct space was also assessed. Following Law,
Wong, and Mobley (1998), these higher-order constructs fall under the category o f aggregate multi
dimensional constructs, formed by some algebraic combination of their dimensions.
The relationship between first and second order constructs refers to epistemic or correspondence
rules (Fomell & Bookstein, 1982), which can be of two types - reflective or formative. Reflective
structures assume that the latent second order construct causes the first order factors. For formative
structures, the second order factors are conceived to be outcomes, caused by the first order factors. The
first-order dimensions o f formative constructs may not even be correlated. Following the proposed
conceptualization, all three second-order constructs were modeled as formative.
Chin (1998) cautions that higher-order factors should not be proposed merely to explain the
covariation among the lower factors. Chins basic recommendations are to conceptualize the first-order

factors to the higher-order concept, which in turn must also be theoretically related to other constructs in
a conceptual model that are at a similar level of abstraction, independent of whether the other factors are
measured directly from measurement items or from other first order factors (p. 10). This is consistent

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128

with the proposed theoretical model that assumes inter-relationships among these higher-order constructs
and other variables at a similar level of abstraction, such as competitive advantage and alignment.
In PLS, second order factors can be approximated using two common procedures (Chin,
Marcolin, & Newsted, 2003). One approach, which can be estimated by the standard PLS algorithm, uses
repeated indicators following Lohmoller's (1989) hierarchical component model by directly measuring
higher-order constructs by observed variables for all the first order factors. The second approach models
the paths from the first order to the second order construct, and it is used to examine the relative path
weights as this molar construct is used to predict other constructs in your model (Chin & Gopal, 1995).
Since the proposed model uses the second-order constructs to predict other variables, while the former
procedure works best with equal numbers of indicators for each construct, the latter analysis method was
used. In this procedure, weights of formative constructs are treated as betas in a regression analysis, and
the variance explained for the second order constructs will always be unity.36 Loadings of measurement
items for each reflective first-order construct are loadings of a principal components factor analysis.
The existence of a second-order structure was assessed through a series o f tests following the
procedure prescribed by Chin and his colleagues (Chin, 1998; Chin et al., 2003). The first step is to
examine the magnitude of the inter-correlations of the first-order factors. As shown in Table 9, the
correlations among the first-order dimensions are of high magnitude and are statistically significant
(p<01 level). They range from .59 to .77 for resource reconfigurability, .66 to .74 for IT competence, and
.55 for environmental turbulence. According to Chin et al., for reflective factors, these paths should be
above 0.7 to achieve an adequate model fit. However, for formative factors, these correlations may be
lower since the first-order dimensions do not necessarily move in the same direction. These correlations
suggest that the correlations among first-order factors can be explained in a more parsimonious way by
higher-order constructs, yet not a reflective factor, implying the existence of a formative structure.
In addition to the direct measures for the first-order constructs, indicator variables were assessed
for the latent second-order constructs (Barki & Hartwick, 2001; Segars & Grover, 1998). These indicators

36 PLS does not directly allow for testing second-order factors. Thus, second order structures were derived from the
first-order factors.

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are used to assess if the second-order measures created by the aggregate o f the first order constructs are
highly correlated with the aggregates. Even if the indicator serves as a mere proxy for the second-order
construct (in principle, the second-order factor is a latent, non-measurable construct), it can still provide
an indication whether the aggregate variable describes what it is intended to capture (content validity).
The final step was to test whether the second-order factors fully mediate the relationships
between the first-order factors and the dependent variables (Chin, 1998). This step assures that the
second-order structures completely represent the first-order dimensions by fully mediating the impact of
their first-order dimensions on the dependent variable they are theorized to predict.

3.1 Resource Reconfigurability as a Second-Order Structure


Since resource reconfigurability is proposed as a second-order construct, it is measured using
factor scores for each of the four dimensions. In turn, each first-order dimension is viewed as a reflective
factor drawn directly from measurement items.
As shown in Figure 5, the PLS weights indicate that all dimensions are significant formative
indicators. The paths between resource reconfigurability and its underlying first-order dimensions are
0.35 for coordination competence, 0.33 for absorptive capacity, 0.27 for collective mind, and 0.24 for
market orientation, all being statistically significant (p<.0001). Loadings of measurement items for each
first-order construct, which can be viewed as loadings in a principal component factor analysis, are all
above .70 and statistically significant (p<.001). Finally, the correlation between the aggregate resource
reconfigurability measure and its indicator is .63 (p<,001).
In terms of testing the mediating role of resource reconfigurability between its underlying
dimensions and competitive advantage (the hypothesized direct dependent variable), three PLS models
were created, similar to the traditional test for mediation (Baron & Kenny, 1986). One model tested the
direct impact of resource reconfigurability on competitive advantage. The second model tested the direct
impact of the four underlying constructs (coordination competence, absorptive capacity, collective mind,
and market orientation) on the two performance measures. Finally, the third model simultaneously
introduced all five independent variables on the dependent variable.

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Figure 5. The Form ative Nature of R eso u rce R econfigurability

Resource
Reconfigurability

.35**

Coordination
Competence

.33**

Absorptive
Capacity

.27**

Resource

.63**

R econfigurability
Indicator

.24**

Collective
Mind

Market
Orientation

As shown in Table 10, resource reconfigurability is the only statistically significant variable
when all first-order factors are accounted for, implying its full mediating role on both response variables.

Table 10. T est for M ediation for R eso u rce R econfigurability


PLS Model

Independent Variables

R esource Reconfigurability

Coordination Com petence


Absorptive Capacity
Collective Mind
M arket O rientation

PLS Diagnostics
SCA
R2
42***
R 2 =.31
.28**
.34**
.25**
.22*

R2 = .28

R esource Reconfigurability
Coordination C om petence
A bsorptive Capacity

-.04
.08

R2 = .32
C ollective M ind
.02
M arket Orientation
-0.03
*** suggests sign ifican ce a tp < .001 level; ** a tp < .0 1 level; * a tp < .0 5 ; + a tp < .l level.

All preceding tests confirm the existence of the proposed second-order formative structure of
resource reconfigurability and its underlying first-order dimensions, rendering support for HI.

3.2 IT C om p eten ce as a S econ d -O rd er Stru ctu re


IT competence is proposed as a second-order construct consisting of three formative factors
(PRMS, KMS, and CWS), and it is measured using factor scores for each dimension. As shown in Figure
6, the weights for IT competence indicate that all formative factors are significant (p<.001), and the

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loadings o f measurement items for each first-order construct are all above .70 (p<.001); the correlation
between the indicator and the aggregate IT competence measure is .88 (p<.001).

Figure 6. The Form ative N ature of IT C om petence

IT Competence

IT C om petence
Indicator

.35**

.40**
Project / Resource
Management Systems

. 88 **

Knowledge Management
Systems

Cooperative Work
Systems

The mediating role of IT competence between its three underlying dimensions and resource
reconfigurability (the hypothesized direct dependent variable), three PLS models were created, similar to
the procedure for resource reconfigurability. One model tested the direct impact of IT competence on
resource reconfigurability. The second model tested the direct impact of the three underlying constructs
on the dependent variable. The third model simultaneously tested all four predictor variables on the
response variable. As shown in Table 11, IT competence is the only statistically significant predictor
when all first-order factors are controlled for, implying its mediating role as a second-order variable. The
previous tests support the proposed second-order formative structure of IT competence, validating H4.

Table 11. T est for M ediation for IT C om petence

PLS Model

Independent Variables

PLS Diagnostics
Resource Reconfigurability

R2

IT C om petence

3g**

R 2 =.21

PRMS
KMS
cw s

.24**

IT C om petence
PR M S

.23**

R2 =.19

.15*

41 ***

.03
R2 =.22
.05
-0.01
*** suggests sign ifican ce at p<.001 level; ** at p<.01 level; * at p<.05; + at p < .l level.
3

KMS
cw s

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3.3 Environmental Turbulence as a Second-Order Structure


Similarly, environmental turbulence is formed by the two first-order factors (market and
technological turbulence). The weights for environmental turbulence indicate that the two formative
factors are significant (p<001), the loadings of the measurement items for each first-order factor are
above .70 (p<.001), and the correlation between the indicator and turbulence is .66 (p<.001). The
theorized impact of environmental turbulence on resource reconfigurability (mediating its two underlying
dimensions) was also tested with three distinct PLS models (omitted for brevity). The first model tested
the direct impact of environmental turbulence on resource reconfigurability. The second model tested the
direct impact of marketing and technological turbulence on resource reconfigurability. The third model
concurrently tested all predictors on the response variable, where overall environmental turbulence is the
only statistically significant predictor, validating the proposed mediating role of the second-order factor.
In sum, there is evidence to confirm the adequacy o f the existence and measurement of all three
proposed higher-order structures. It should be noted that no statistical technique yet exists to provide an
error-proof measurement or a compelling test for the existence of formative higher-order structures.
Nonetheless, a series of tests showed that the proposed higher-order structures are more coherent and
parsimonious representations over the baseline model (all first-order factors acting independently).

4. Computation of Strategy-Environment Alignment


Alignment requires not only examination of distinct theoretical meanings, but also a thorough
empirical investigation of analytical requirements (Venkatraman, 1989). The goal is to have a rigorous
empirical test to assess the proposed strategy-environment alignment by examining the degree of
adherence (e.g., alignment) of the resource deployment (functional NPD competencies) to the specific
environmental turbulence that is associated with the highest performance. The proposed alignment
computation is dependent on the development and justification of an ideal profile. The multivariate
deviation of the resource deployment from the ideal profile examines the degree of misalignment, which
would suggest a negative correlation with performance (competitive advantage in NPD).

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Following Venkatraman and Prescott (1990) and Sabherwal and Kirs (1994), the first step was to
form clusters using the frequently used cluster analysis procedure of Ketchen and Shook (1996) using a
Wards method of hierarchical cluster analysis.37 The variables used to cluster the data were marketing
and technological turbulence. The two cluster solution was selected based on analytical results and a
graphical inspection o f the icicle plot (Hair, Anderson, Tatham, & Black, 1995). As shown in Table 12,
Cluster 1 (n=97), termed high-turbulence cluster, demonstrated statistically significant higher degrees of
marketing and technological turbulence compared to the low-turbulence cluster (Cluster 2, n=83). Most
companies in Sample 1 came from the high-tech industry, telecommunications, medical devices,
consumer electronics and goods, automotive, and aerospace. Sample 2 included enterprises mostly from
manufacturing, chemical, industrial and construction equipment, financial services, and food services.
To validate the proposed two-cluster solution (Ketchen & Shook, 1996), a second MANOVA
analysis was performed with overall environmental turbulence as the differentiating factor. This
validation confirms a higher degree of turbulence for the high- versus the low-turbulence one (Table 12).

Table 12. C luster A nalysis R esu lts and C luster Validation

Variable
Marketing Turbulence
Technological Turbulence
Environmental Turbulence

Cluster 1 (n=97)

Cluster 2 (n=83)

4 .0 (0.95)

2 .6 (0.90)

4.2 (0.83)

2.3 (0.84)

7,89***

3.7 (0.82)

2.8 (0.92)

4 .3 2 * * *

1 > 2

*** denotes p-value

t-value

Comparison

. 1 2 ***

1 > 2

>2

< .0 0 1

The second step developed a multi-dimensional ideal profile for each cluster. This profile
reflects differential weights for the functional competencies, which were obtained by the normalized and
standardized beta values of the functional competencies-performance regression for each cluster
(Sabherwal & Chan, 2001). This is an acceptable assumption given that having equal weight across all
competencies is generally invalid (Venkatraman & Prescott, 1990). The ideal profile was calculated using
the highest performing work units for each cluster, specifically the top 10% of the work units based on
the perceptual and objective performance measures.38 Strategy-environment alignment was then included

37 Wards method minimizes intra-cluster differences and maximizes inter-cluster differences among the variables
used for clustering (environmental turbulence variables in this study).
38 Since the top 10% was removed from the study sample to calculate the ideal profile, the bottom 10% was also
removed to avoid a biased sample.

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134

as a distinct variable in the assessment of the structural model. Alignment was calculated as the weighted
Euclidean distance of the competence variables from the ideal profile for each cluster using the equation:

Wj(Xsj - C j f )

Alignment = 1 -

Where:
Wj = Weighted beta coefficients of functional competence effect
XSj = Standardized score of each organization
Cj = Mean of Standardized Score of Ideal Profile

5. The Structural M odel


The PLS path coefficients (which can be interpreted as standardized regression coefficients) are
shown in Figure 7. For clearer exposition, the item loadings of each construct (which can be interpreted
as loadings o f a principal components factor analysis) are omitted since are all above 0.75.39 The sample
size of 180 is adequate given the largest number of structural paths directed at any given construct (Chin
et al., 2003). All control variables were initially included in the model; the significant ones were retained
and the non-significant were dropped from the model, as shown in Table 13. The moderating effects of
environmental turbulence were tested as part of the overall structural model, following Chin et al.40

Figure 7. PLS R esu lts of Structural Model (n=180)

Environmental
Turbulence
.23*

IT Competence
.43**

.14*

Resource
Reconfigurability

Competitive
Advantage

.24**

.65

.48**

.50

StrategyEnvironment
**
Significant at p<.01
*
Significant at p<.05
Variance explained in bold

ALIGNM ENT

CONTROL VARIABLES (See Table 13)

39 Item loadings greater than .70 are considered acceptable (Fomell & Larcker, 1981).
40 Standardized measures for the two moderated factors (e.g., IT competence and resource reconfigurability with
environmental turbulence) produced an interaction term by cross-multiplying all measures of each factor.

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135

As shown in Figure 7, resource reconfigurability has a significant influence on both


environment-strategy alignment (b=.52, p<.01) and competitive advantage (b=.24, p<01), supporting H2
and H3b, respectively. Together with alignment (b=.48, p<.01, H3a) and NPD knowledge and virtuality
(Table 13), resource reconfigurability helps explain a substantial variation of competitive advantage
(R2=50%).

A s

hypothesized, IT competence has a substantial impact on resource reconfigurability (b=.53,

pc.Ol), validating H5. It is important to note that IT competence does not influence competitive
advantage or alignment directly, and its effect is fully mediated by resource reconfigurability.
Environmental turbulence (b=.32, p<01) also influences resource reconfigurability, supporting
H6. Together with innovation type, intra-firm NPD, collaborative NPD, and virtuality, IT competence
and turbulence explain 65% of the variation in resource reconfigurability. Finally, environmental
turbulence moderates both the effect o f resource reconfigurability on competitive advantage (b=.14,
p<05) and also the impact o f IT competence on resource reconfigurability (b=.23, p<.05), supporting H7
and H8, respectively. In sum, there is strong support for all hypotheses (and no significant non
hypothesized effects), validating the overall structural model. Table 13 summarizes the impact of all
control variables on competitive advantage, resource reconfigurability, and IT competence.

Table 13. Control V ariables on Prim ary D ependent V ariables


Control Variables

Competitive Advantage
(R2=.40)

Resource Reconfigurability
(R2=.65)

IT Competence
(R2=.46)

Cross-functional Integration

.1 1 *

N /S

N /S

Functional D iversity

N /S

N /S

N /S

N P D Experience

N /S

N /S

N /S

N P D K now ledge
Innovation Type

.15*

N /S

.24*

C ollaborative D evelop m ent

.N/S
N /S
N /S

-.27**
-.18*
.18**

V irtuality
O rganization Size
W ork U nit S ize

.18**
N /S
N /S

.14*
N /S
N /S

.31**
.18*
.1 2 *
3 3 **

Intra- V s Inter-Firm N P D

N /S
N /S

Since Figure 7 portrays the results from the aggregate of Studies I and II, separate analyses were
individually performed for each empirical study. Figure 8 shows the results of the independent data
analyses. These results attest to the similarity of the two studies, further supporting the robustness of the
proposed research model across different settings.

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136

Figure 8. PLS R esu lts for S tu d ies I and II (Independent A nalyses)

Environmental
Turbulence
.35**

IT Competence
.38**

.18*

Resource
Reconfigurability
.57

.20 *

Competitive
Advantage
.55

.42**

^4

Strategy
Environment
ALIGNMENT

Study I (n=121)

Environmental
Turbulence
.17*

IT Competence
.48**

. 10*

Resource
Reconfigurability

Competitive
Advantage

.66

Study II (n=59)

.49

Strategy
Environment
ALIGNMENT

5.1 Mediating Role of Dynamic Capabilities


In the proposed model, dynamic capabilities (specifically resource reconfigurability and its
underlying dimensions) have been theorized as intermediate capabilities whose role is to shape new
functional competencies (Amit & Schoemaker, 1993). Accordingly, IT competence was the basis or
platform for these dynamic capabilities, consistent with Grant (1995). To validate the mediating role of
resource reconfigurability and strategy-environment alignment in the process by which IT influences
competitive advantage, three models were compared. First, a direct model where IT has a straightforward
effect on competitive advantage. Second, a model without dynamic capabilities, but only with aligned

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137

functional competencies (strategy-environment alignment).41 Finally, the proposed model with both
dynamic capabilities and strategy-environment alignment.
Figure 9 attests the key mediating roles o f resource reconfigurability and environment-strategy
alignment in the proposed model, while confirming the indirect role of IT competence on performance.
Similar to the original research model, all significant control variables are included in these three models.
The first model with IT competence as the direct factor explains a 28% o f the variance on competitive
advantage. The second model with strategy-environment alignment explains significantly higher Rsquared (41%), thus validating the mediating role of functional competencies. Finally, the proposed
model with both dynamic and functional competencies is significantly superior, explaining 50% of the
variance on competitive advantage. Therefore, all regression mediation tests validated the mediating role
of both resource reconfigurability and also of strategy-environment alignment.

Figure 9. T est of th e M ediating Role of R esource R econfigurability


IT Competence

Competitive
Advantage

.13*

.28

IT Competence
.31 **

Strategy Environment
ALIGNMENT

.57**

-*

Competitive
Advantage

.41

IT Competence

.43**

Resource
Reconfigurability

.24**
.52**

Competitive
Advantage
.48**

.50
**
Significant at p<.01
*
Significant at p<.05
Variance Explained is shown in bold

Strategy Environment
ALIGNMENT

41 Omitted for brevity, a model with functional competencies as the mediating variable is inferior to the model with
strategy-environment alignment (i.e. aligned functional competencies with the environment).

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138

It is important to clarify why both resource reconfigurability and strategy-environment


alignment are significant predictors of competitive advantage. At any given snapshot in time, all
aligned functional competencies should explain all of the variance of competitive advantage. Given the
cross-sectional nature of the model, indeed strategy-environment alignment explains more variance
(21%) than resource reconfigurability (11%). The remaining 17% o f the variance is explained by the
control variables (see Table 13). However, since strategy-environment alignment does not include all
functional NPD competencies and all sources of environmental turbulence, it cannot explain all of the
variance of competitive advantage. On the contrary, in a longitudinal model, resource reconfigurability
should be the only factor to explain the variance in competitive advantage because the configurations of
functional competencies are expected to change at any given point in time.

5.2 Dynamic Capabilities in Different Environments


As the moderating role of environmental turbulence attests (b=14, p<.05) in Figure 7, resource
reconfigurability is more valuable in turbulent environments. However, it would be useful to examine the
role of resource reconfigurability on environments with different turbulence. The two clusters (high Vs
low turbulence) were thus separately analyzed for the key relationships in the base model (Figure 10).

Figure 10. Model C om parison for High Vs Low T urbulence E nvironm ents
Resource
Reconfigurability

IT Competence

Competitive

Advantage
.62**

CLUSTER 1 - HIGH TURBULENCE

.53

Strategy Environment
ALIGNMENT

CLUSTER 2 - LOW TURBULENCE

IT Competence

.37**

Resource
Reconfigurability
4 4 **

**

Significant at p<.01
*
Significant at p<.05
Variance Explained is shown in bold

Competitive
Advantage

,1R*
.51**

Strategy Environment
ALIGNMENT

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.46

139

Compared to the overall sample, the high turbulence cluster highlights the important role of
resource reconfigurability on both competitive advantage (b=.31, p<.01) and on strategy-environment
alignment (.62, p<.01). Similarly, the impact of IT competence on resource reconfigurability is also
augmented (b=.49, p<01). In contrast, the low turbulence cluster shows that resource reconfigurability
has a lower impact on competitive advantage (b=. 18, p<.05) and alignment (b=.44, p<.01), while IT
competence has also a reduced influence (b=.37, p<.01). Nonetheless, the interesting finding is that for
both clusters, the effects of resource reconfigurability and IT competence are significant. While dynamic
capabilities are only expected to be influential in rapidly changing environments, the results suggest their
value in low turbulent environments as well.

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140

CHAPTER 6: DISCUSSION
Drawing upon the dynamic capabilities perspective (Eisenhardt & Martin, 2000; Teece et al.,
1997), this paper proposes the construct o f resource reconfigurability as a multi-dimensional dynamic
capability that helps organizations exploit existing internal and external resources to address rapidly
changing environments. Dynamic capabilities have been viewed as hidden or invisible processes. As
Andrews (1987) observed: much of what is intuitive in this process is yet to be identified (p. 46).
Therefore, this study identifies, conceptually proposes, operationalizes, and empirically examines a set of
specific capabilities - coordination competence, absorptive capacity, collective mind, and market
orientation - that cumulatively forms the higher-order formative construct of resource reconfigurability,
proposed to apply to both organizational and inter-organizational NPD work units. This research further
examines a set of key antecedents and consequences of resource reconfigurability applied in the NPD
context. The moderating role of environmental turbulence on these relationships is also investigated.

1. Key Findings and Insights


The results shed light on the nature and role of dynamic capabilities. Lippman and Rumelt
(1992) argued that some sources of competitive advantage are so complex that the organization itself
might be difficult to understand and replicate. Dynamic capabilities are such inherently complex sources.
The resource reconfigurability construct is described as a complex, scarce, heterogeneous, and valuable
dynamic capability that is unlikely to be replicated, imitated, or substituted, thus forming the basis for
competitive advantage. Nonetheless, following Eisenhardt and Martin (2000) who argue that dynamic
capabilities consist of a few simple rules, this study hypothesizes and validates resource reconfigurability
as a second-order formative dynamic capability formed by the simpler (first-order) dimensions of
coordination competence, absorptive capacity, collective mind, and market orientation. The nature of
each dimension is thoroughly described, and its relationship to resource reconfigurability is explained.
Second, this study supports the notion that new sources of competitive advantage extend beyond
simple functional competencies (Collis, 1994). The results confirm the value potential of resource
reconfigurability as a good predictor of differential performance outcomes in a NPD context. Not only

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141

resource reconfigurability directly influences competitive advantage (after controlling for common NPD
success factors), but it also has an indirect effect through strategy-environment alignment. This finding
validates the role of resource reconfigurability on creating successful configurations of functional
competencies that match environmental conditions, at least in for functional NPD competencies. In doing
so, not only it validates the importance of strategy-environment, but also it proposes and tests resource
reconfigurability as a new antecedent of alignment. Finally, because resource reconfigurability is
expected to influence performance in rapidly changing contexts, it was hypothesized and empirically
shown to be more valuable in turbulent environments.
It is important to delineate the long-term spirit of dynamic capabilities as opposed to the more
static role of functional competencies. At any given time, functional competencies are expected to
influence performance (especially if they align or fit with environmental contingencies). However, over
time, performance is influenced by dynamic capabilities that are responsible for shaping the functional
competencies to better match the environment. It is arguably challenging to continually recognize, define,
and build functional competencies that continuously match the rapidly changing environment to create a
sustainable competitive advantage. The challenging role of dynamic capabilities is to reconfigure existing
resources to create new sets of functional competencies that continuously match the environment toward
a sustained competitive advantage. Resource reconfigurability is herein modestly proposed as one means
to capture the nature, spirit, and role of dynamic capabilities.
It is necessary to point out that competitive advantage is operationalized in an NPD context as
the combination of product quality and process efficiency. Whereas the literature has shown a long
standing trade-off between process efficiency (time and cost) and effectiveness (product quality and
innovation), resource reconfigurability is shown to positively influence the efficiency-effectiveness
combination. Since the proposed operationalization of competitive advantage in NPD is highly correlated
with objective performance measures (both through self-reported and secondary data), there is confidence
in the valuable role o f resource reconfigurability in NPD in particular and organizational activities in
general. This study thus improves upon research that uses exclusively perceptual measures.

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142

In terms o f the antecedents of resource reconfigurability, IT competence was proposed and


validated as an important predictor by acting as the enabling platform on which dynamic capabilities are
built. The first issue was to conceptualize, operationalize, and test the multi-dimensional nature of IT
competence in NPD. Similar to the studys key constructs, IT competence was viewed as a formative
higher-order factor driven by the effective use of three IT systems that are commonly used in NPD
processes - project/resource management systems, knowledge management systems, and cooperative
work systems. The results confirmed both the proposed nature of IT competence, and also its impact on
resource reconfigurability. In addition, environmental turbulence had an impact on resource
reconfigurability, both directly and also by positively moderating the impact of IT competence. These
findings stress the importance of environmental contingencies on dynamic capabilities.
In sum, the results confirm all proposed hypotheses, while the non-hypothesized relationships
were not significant. An important insight is the indirect role of IT competence on competitive advantage
through resource reconfigurability and strategy-environment alignment. This finding supports the notion
that IT influences performance through mediating effects, calling for the identification of valuable ITenabled processes and capabilities, such as resource reconfigurability and other dynamic capabilities.

2. Theoretical Implications
This study draws from several literatures to propose a set of dynamic capabilities and their
antecedents and consequences. In doing so, it extends previous research and has important implications
for (1) information systems research, (2) the strategic management literature and dynamic capabilities
view, and (3) the study of NPD.

2.1 Implications for Information Systems Research


From an IS perspective, the most important result of this study is the strong direct impact of IT
competence on resource reconfigurability, and its indirect effect on competitive advantage. This finding
places IT as a key driver of dynamic capabilities, laying the groundwork for redefining the role of IT in
todays turbulent environments as an enabler of strategic flexibility. Rapidly changing conditions and

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accelerated clock-speeds characterize most contemporary business environments (Mendelson & Pillai,
1998). In fact, Keen (1981) argues that IT has become the backbone of organizations in dynamic markets.
Sambamurthy (2000) stresses the role of IT at the forefront of experimentation with different business
models. This study extends this dynamic view of IT by delineating the process by which IT leads to
competitive advantage in turbulent environments. IT-enabled resource reconfigurability has
implications for the study of IT as an enabler of competitive advantage, which needs to take in
consideration dynamic capabilities to fully describe the role of IT in rapidly-changing environments.
While IT has been regarded as a strategic necessity (Clemons et al., 1993; Clemons & Row,
1992; Clemons, 1991), this study argues that an emerging role for IT is on dynamic (as opposed to static)
strategy, especially in turbulent environments. This is consistent with Brynjolfsson and Hitt (1998) who
argue that the greatest benefits from IT in todays environments would come from new strategies and
organizational change. Orlikowski and Hofinan (1997) also argue that organizations should use IT to
undertake unprecedented, complex changes (p. 12). The proposed resource reconfigurability is a specific
dynamic capability that IT supports to initiate strategic change. At least four theoretical perspectives were
employed to justify this relationship, which received strong empirical support. Therefore, there is
confidence in the role o f IT as a strategic differentiator in contemporary business environments.
Nonetheless, it is important to note that IT alone is not sufficient in single-handedly creating any strategic
direction (Segars & Dean, 2000), but it is rather proposed as a necessary, yet not sufficient enabler.
The relationship between IT resources and performance is still not well understood (Bharadwaj,
2000; Mata et al., 1995; Powell & Dent-Micallef, 1997). As the comparison among the direct, static, and
dynamic view portrays (Figure 11), the best representation of the process by which IT competence leads
to competitive advantage is the one where resource reconfigurability and strategy-environment alignment
fully mediate its impact. The proposed research model thus adds granularity to our understanding o f how
IT resources lead to firm performance. In doing so, this study contributes to better understanding the
nature o f the IT paradox by delineating some o f the important mediating IT effects that need to be taken
in account when predicting performance. By arguing for an indirect impact through dynamic capabilities,
IT should not be expected to directly influence performance, but rather in conjunction with other

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economic and social aspects (Galunic & Eisenhardt, 2001). While functional competencies were posited
as potential mediators, this study adds dynamic processes as yet another mediator that creates complex
interactions with IT variables. In doing so, this study adds to the emerging literature that examines the
exact nomological network of factors through which IT influences performance (Bharadwaj, 2000;
Sambamurthy et al., 2003; Santhanam & Hartono, 2003).

Figure 11. Com peting Theoretical Views

DIRECT VIEW
Competitive
Advantage

IT Competence

STATIC VIEW

Functional
Competencies

IT Competence

Competitive
Advantage

PROPOSED DYNAMIC VIEW

IT Competence

Dynamic
Capabilities

StrategyEnvironm ent
A lignm en t

Competitive
Advantage

IT productivity studies showed mixed evidence on the role of IT on business profitability and
competitive advantage (Brynjolfsson, 1993; Hitt & Brynjolfsson, 1996; Powell & Dent-Micallef, 1997).
Carr (2003) further argues that the strategic importance of IT has diminished. To address the divergence
of opinions on the strategic role of IT, this study argues that a key mediating variable in the relationship
between IT and competitive advantage has been largely overlooked by the literature. Dynamic
capabilities are proposed to mediate the role of IT on strategic outcomes. Failure to include this mediator
discounts the role of IT because a key variable is excluded from the process by which IT influences

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competitive advantage. From an empirical perspective, this study provides an empirical verification on
the mediating role of IT-enabled dynamic capabilities on performance. This study thus answers the call
for empirical research to examine how IT contributes to strategic flexibility (Sambamurthy, 2000).
In addition to describing the impact of IT competence, this study describes and validates the
nature of IT competence in NPD. Whereas NPD processes are becoming heavily supported by IT tools
(Nambisan, 2003), the IS literature has done little to inform theory and practice as to the potential benefits
from effectively using IT in NPD processes. The proposed higher-order formative view captures the
multi-dimensional view of IT functionality, while suggesting an integrative view of how different
functionalities work together. Other than the descriptive nature of IT competence, the proposed view has
design implications for building superior IT functionality to support dynamic capabilities. Finally, the
operationalization and test of IT competence in NPD contributes to our better understanding of the IT
artifact, which by large is still not well-defined or described (Orlikowski & Iacono, 2001). Accordingly,
the empirical contribution is the operationalization and measurement of IT competence in NPD.

2.2 Implications for Strategic Management


A growing body o f the strategy literature examines how dynamic capabilities emerge, develop,
change, and contribute to performance (Helfat, 2000). However, the very nature of dynamic capabilities
has generally been viewed as a black box, apparently due to its inherent complexity. The proposed
resource reconfigurability with its underlying dimensions aims to delineate the black box of dynamic
capabilities and provide a concrete representation of a specific set of dynamic capabilities in NPD. The
proposed multi-dimensional view is consistent with Eisenhardt and Martin (2000) who describe dynamic
capabilities as few simple processes. The proposed logic of resource reconfigurability with its underlying
dimensions provides a unified view of such capabilities (which have been predominantly examined in
isolation) under the umbrella of a higher-order unitary factor, which helps explain how heterogeneous
capabilities can successfully inter-relate while maintaining their divergence. Hence, a primary
contribution o f this study is a model for representing the nature and role of dynamic capabilities in NPD.
Extrapolating beyond NPD, resource reconfigurability can be used as a comprehensive set of

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management best practices in terms of improving performance and achieving a competitive advantage,
especially in turbulent environments. Dynamic capabilities represent an emerging and potentially
integrative approach to understanding the newer sources of sustainable competitive advantage.
The results attest to important role of dynamic capabilities on firm performance. Specifically
resource reconfigurability has a substantial predictive power on competitive advantage, which is
significantly related to objective performance measures (Return on Sales, Sales Growth, and Return on
Assets). In terms of the potential of resource reconfigurability on competitive advantage, dynamic
capabilities are strictly idiosyncratic (Dierickx & Cool, 1989) and are hard to imitate (Collis, 1994),
making them a viable source o f differential performance. The resource reconfigurability construct thus
provides the means for benchmarking and diagnosis of NPD performance since it influences the
combination o f product effectiveness and process efficiency. Learned, Christensen, Andrews, and Guth
(1969) argued that the real key to success is to develop a truly distinctive capability. Core capability is
the knowledge set that distinguishes and provides a competitive advantage (Leonard-Barton, 1992).
Rather than focusing on building functional competencies (which are likely to eventually become core
rigidities in rapidly-changing environments), this study follows Collis (1994) to argue that dynamic
capabilities may be the only true core capability. As Galbraith (1977) notably argues, there may be no
long-term advantage other than the ability to organize and manage resources effectively and efficiently.
This study extends the value potential of dynamic capabilities by showing that even in relatively
stable environments, resource reconfigurability influences competitive advantage by adequately
addressing changing conditions. This highlights the value of resource reconfigurability in virtually all
environments to overcome the cost of building this dynamic capability. This is consistent with Penrose
(1959) who argues that, even in stable environments, effectively reconfiguring existing resources in
innovative ways could create superior services and earn higher rents. This has implications for
organizations to continue upgrading their functional competencies to create strategic growth (Hitt et al.,
1998). In sum, the proposed dynamic view is a superior conceptualization, even in environments with low
turbulence. Nonetheless, todays business environment has become extremely turbulent (Sawney &
Parikh, 2001), and the value potential of resource reconfigurability is expected to proliferate.

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As Figure 11 graphically depicts, there are at least three theoretical views that describe the
process by which IT can influence competitive advantage. The first view proposes a straightforward
direct impact. While being necessary to validate such direct effect (and in fact there is a statistically
significant empirical effect), it is also important to (i) identify potential mediators (from a descriptive
standpoint), and (ii) better predict the dependent variable (from a predictive standpoint). The second
theoretical view proposes the mediating role of functional competencies being facilitated by IT to
influence competitive advantage. While being superior to the direct view, there are still at least three
areas for improvement: (i) capturing the impact o f additional variables, such as the environment; (ii)
improve the predictive power of the model on competitive advantage, and (iii) account for additional
moderators and improve the descriptive power of the model. The proposed dynamic view adds another
significant moderator, which helps improve the descriptive and predictive power of the model. In
addition, the strategy-environment alignment better accounts for the crucial role of the environment. The
value-added benefit of the dynamic view is its longitudinal nature. At any given snapshot in time,
alignment better predicts competitive advantage; however, over time, dynamic capabilities are those
expected to predict performance (Eisenhardt & Martin, 2000).
In terms of the mediating role of strategy-environment alignment, if all functional competencies
and environmental contingencies were accounted for, at any given point in time, would be a perfect
mediator, and resource reconfigurability would only be an indirect predictor. Since this study only
accounts for three functional competencies and two sources of environmental turbulence, alignment is
empirically a partial mediator. Since dynamic capabilities remain constant relative to functional
competencies (Eisenhardt & Martin, 2000), over time, resource reconfigurability would be the only
source of sustainable competitive advantage (since different configurations o f functional competencies
would be valuable at any given time depending on environmental contingencies).
The proposed model is a parsimonious view of multiple organizational abilities. NPD is viewed
as the integrative capability (Henderson & Cockbum, 1994) that brings to bear dynamic, functional, and
IT competencies. Dynamic capabilities support the transition from local knowledge into a global, tightlyconnected set of cross-functional competencies (D'Adderio, 2001), with the aid of IT competence.

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Similarly, Grant (1995) proposed a hierarchy o f organizational capabilities with specialized local
resources integrating to build functional capabilities that in turn combine to build cross-functional
capabilities. Different capabilities are likely to explain greater performance variations among
organizations, as this study attests. In fact, resource reconfigurability (dynamic capabilities) and strategyenvironment alignment (functional competencies) explain competitive advantage in this study.
Similar to the resource-based view, the dynamic capabilities perspective has also been criticized
due to an alleged tautological relationship with competitive advantage (Eisenhardt & Martin, 2000). To
overcome this issue, a specific mediating variable - strategy-environment alignment - between resource
reconfigurability and competitive advantage was theoretically proposed and empirically validated. The
proposed mediator captures the extent to which functional NPD competencies form a favorable
configuration with environmental variables. By showing this mediating effect, this study empirically
validates that dynamic capabilities impact competitive advantage through favorable resource
configurations, overcoming tautological criticism.
While the literature focused on firm-centric dynamic capabilities (Teece et al., 1997), this study
argues that inter-firm relationships can also reconfigure their interorganizational resources in response to
changing environments. This study thus extends the dynamic capabilities view to an interorganizational
level of analysis by specifying NPD work units (both intra- and inter-organizational) as the unit of
analysis. This suggests that interorganizational relationships can also develop their own dynamic
processes to guide their reconfiguration and transformation over time. This study contributes to the
relational view (Dyer & Singh, 1998) in the sense that dynamic capabilities is another example of
organizational processes that extend beyond traditional firm boundaries. This finding has implications for
the viability of long-term interorganizational partnerships since they need not dissolve when the
environment changes, but they can still reconfigure their bilateral resources to shape their functional
competencies to match the emerging environment.
While most studies on dynamic capabilities have focused on the firm level, this study examines
dynamic capabilities at the group level. Although functional competencies are not affected dramatically
by a single project, NPD projects pave the way for change by highlighting rigidities, challenging existing

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knowledge, and pushing for new competencies (Leonard-Barton 1992). Leonard-Barton further argues
that effective competition is based primarily on incremental innovation that carefully develops
capabilities as opposed to strategic leaps. This view of strategy does not assume making a few large, one
time moves, but a continual configuration o f interrelated activities. This study thus enlarges the
boundaries of middle range theory on project-level work units to suggest how organizational
competencies are built, and hence influence strategy. Accordingly, from an empirical standpoint, it also
extends the measurement of dynamic capabilities from the organizational to the group level.
This study also adds to the emerging empirical research on dynamic capabilities, extending
research from qualitative case-based studies to empirical, survey-based ones. By operationalizing and
measuring a specific set of dynamic capabilities, it paves the road for more quantitative studies, including
a more analytical lens. Potential issues that could be examined from an economic modelling lens could be
optimization studies for finding the trade-off between the benefits and cost of dynamic capabilities.

2.3 Implications for New Product Development


The dynamic capabilities perspective increases our understanding as to how NPD work units can
create long-term competitive advantage by shaping NPD competencies to match the environment to
create successful new products. Getting the right product to market at the right time relies on strategic
flexibility. The proposed resource reconfigurability represents a specific capability for enhancing NPD
effectiveness in rapidly changing environments over time. The effect of resource reconfigurability is
significant over and beyond prior NPD success factors (e.g., cross-functional integration), suggesting yet
another important set of best NPD practices, particularly for industries with fast clockspeeds (Mendelson,
2000; Mendelson & Pillai, 1998).
NPD work units must consistently focus on IT innovations to support new business strategies
and promote favorable change (Feeny & Willcocks, 1998). The proposed resource reconfigurability
essentially exploits recent advances in NPD technologies that focus on project management, knowledge
management, and collaboration. There is a dichotomy whether NPD performance should be primarily
influenced by the actions o f individual agents (e.g., skilled labor, gifted leaders, etc.) or by collective

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capabilities (Verona, 1999). This study argues that advancements in IT are likely to change the
conventional wisdom on how to effectively manage NPD by focusing on truly collective capabilities.
Finally, NPD studies can be classified as either generalist studies that identify multiple key
success factors or specialist studies that examine a small number of factors in great detail. This study
simultaneously performs both. Not only it examines a large set of new and existing success factors in
NPD, but it also delves much deeper into the underlying structure and dimensions of each of the new
constructs. In doing so, it compares a comprehensive set of factors while allowing for a detailed
understanding of the most important ones.

4. Implications for Practice


This study has clear implications for management in turbulent environments. Since long-term
strategy is difficult (Sawney & Parikh, 2001), organizations can only be as flexible as possible to account
for changes in the environment. Drawn from managerial thinking, the sense and respond paradigm has
recently gained attention (Bradley & Nolan, 1998; Haeckel & Slywotzky, 1999). The basic idea is to
detect new opportunities by sensing the market and responding quickly to take advantage o f these
opportunities. The sense and respond paradigm is consistent with the dynamic capabilities view that
essentially aims to sense new opportunities and reconfigure resources to exploit these opportunities. As
environments become increasingly more turbulent, managers must develop an understanding of the
processes of building dynamic capabilities that meet the demands of the environment to build a
competitive advantage. Managers must also examine which functional competencies are becoming
obsolete or rigid, and identify which existing resources are in place to reconfigure new competencies. In
many instances resources may not be readily available, so they must be acquired. The proposed resource
reconfigurability and its underlying dimensions provide a specific tool for sensing changes to the
environment and responding successfully by taking advantage of existing resources.
While IT has been argued to support the sense and respond paradigm (Brown & Sambamurthy,
1999), the exact means are not well understood. This study provides a comprehensive framework by
which IT can support organizational flexibility and adaptation. The proposed model that delineates the

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role of IT toward a competitive advantage provides a useful guide to managerial thinking in terms of
where to focus their attention. Advising managers to focus on static competencies runs the risk of having
competitors inventing new superior capabilities that can generate more effective functional competencies
as the environment changes. Similarly, viewing IT as a facilitator of functional competencies may also be
problematic in the sense that the greatest advantage of IT competencies may be to support dynamic
capabilities. This study stresses the importance of developing dynamic capabilities as a managerial focus,
pointing out to the fact that IT investments should be viewed as drivers of IT competencies and dynamic
capabilities. This study suggests that there is a need for a fundamental change in managerial thinking
about the enabling role of IT, not simply on operational routines, but on transformation processes
(Henderson & Venkatraman, 1993).
Given the importance of IT competence, software manufacturers must build greater flexibility
and customizability into their IT tools to facilitate reconfiguration. Following D'Adderio (2001), it is
useful to design enough flexibility to allow extensive customization and adaptation of IT functionality.
The results also attest that irrespective of whether NPD is conducted within or beyond firm
boundaries, dynamic capabilities are universally important in predicting NPD success. Inter-firm skills,
abilities, and knowledge must be integrated, and suppliers should develop joint teams for continuously
exchanging information, engage in NPD processes early, and assist in problem solving.

5. Limitations and Suggestions for Future Work


The results from a specific process (NPD) at the work unit level from a multitude of industries
are only a starting point in the examination of dynamic capabilities, and specifically of resource
reconfigurability. Dynamic capabilities are deeply ingrained in business processes, making it virtually
impossible to provide an exhaustive set of all influential capabilities (Pisano, 1996). The nature and inter
relationships among resource reconfigurability, IT competence, and competitive advantage should be
examined in related contexts (e.g., IS development, mergers and acquisitions), specific industries (e.g.,
high-tech or manufacturing industries), and different levels of analysis (e.g., organizational, inter-firm).
For example, Karim and Mitchell (2000) examined the acquisition process as a mechanism for changing a

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firms resource base. Future research should also examine which additional dynamic capabilities can be
supported by IT to help combine, build, and reconfigure resources into more productive combinations.
Related to the need for more elaborate studies, it is important to note that sustainable competitive
advantage is not an event, but a process of continuous adaptation, renewal, transformation, and change
(Henderson & Venkatraman, 1993). Organizations with well-developed dynamic capabilities are likely to
be more adept at continually revamping their functional competencies by acting upon the environment to
achieve sustained competitive advantages (Zahra & George, 2002a). This study proposes a crosssectional variance model to examine the ways in which dynamic capabilities emerge, develop, and
transform over time in response to co-evolving key contingencies, and their resulting effects on
performance. The importance of a longitudinal analysis of the evolving role of dynamic capabilities
cannot be underscored. A cross-sectional analysis of capabilities can easily result in incorrect inferences
(Helfat, 2000), and a cross-sectional snapshot of a dynamic phenomenon may be insufficient for
formulating strategy in todays dynamic environments (Bettis & Hitt, 1995). However, robust crosssectional models are necessary starting points for longitudinal studies.
Despite the multi-dimensional nature of resource reconfigurability, IT competence, and
competitive advantage, there may be need to provide more extensive, precise, and rigorous
conceptualizations of this studys three principal constructs. Future research could identify and describe a
more comprehensive and potentially more detailed set of capabilities and their underlying dimensions.
Also, alignment is by itself a complex dynamic concept (Thompson, 1967), and the proposed threedimensional view is obviously incomplete. Future research should also examine the generalizability of
these constructs to other contexts, and develop deeper and more comprehensive, yet parsimonious
constructs to allow for more robust predictions. Such research should also enhance the measurement
properties of these constructs to permit sharper measurement items.
This study viewed competitive advantage as the combination of product effectiveness and
process efficiency, placing equal weights on these dimensions. However, organizations often choose to
emphasize one dimension by pursuing different strategies, such as cost differentiation or niche products
(Porter, 1996). Future research should examine these strategies and how they affect the proposed research

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model. Nonetheless, organizations cannot place excessive emphasis on one dimension because they run
the risk of being left behind by competitors that continue to focus on both dimensions (Sethi, 2000). In
addition, future research should examine a larger set of NPD success measures that may be more
applicable for different types of products or organizations.
Despite the value potential of resource reconfigurability, the cost of building dynamic
capabilities has not been explicitly accounted in this study, which is likely to play a role (Gulati & Singh,
1998). Frequent resource reconfigurations are costly, and there should be a trade off between
reconfiguration and its associated cost, depending on the degree of environmental turbulence. For
example, in a relatively static environment, dynamic capabilities may be unnecessary, and if developed,
they may prove too costly to maintain (Zollo & Winter, 2002). O f course, competitive advantage in this
study incorporates the notion of process efficiency, which is modeled as total development cost and time
to market. Nonetheless, future research could examine this trade-off and attempt to find the optimized
degree of dynamic capabilities given their cost and other moderating variables.
Inter-firm dynamic capabilities presumably allow strategic alliances to survive irrespective of
changes in the environment that could make their competencies rigid. Despite the potential for resource
reconfiguration of existing alliances in face of environmental change, from a firm-centric standpoint,
organizations face a trade-off between incurring the hassle of reconfiguration o f resources in the
extended enterprise versus dissolving the partnership and seeking new partners. Future research should
examine these choices in more detail and determine the factors that dictate the optimum decision relative
to the degree of environmental turbulence.
While this study only examines the impact of the environment on dynamic capabilities, it is
important to note that capabilities themselves can also create changes to the environment (e.g., Brown &
Duguid, 1998; Van den Bosch et al., 1999). In fact, Eisenhardt and Martin (2000) describe dynamic
capabilities as the processes to integrate, reconfigure, gain and release resources - to match and even
create market change (italics added). This study exclusively focuses on the causal effect of IT
competence on organizational capabilities. However, not only an opposite causation might be present, but
also an alignment between IT and dynamic capabilities may be a better representation, which is likely to

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have interesting implications (Hirscheim & Sabherwal, 2001). Future research could examine the
reciprocal relationship between IT competence, organizational capabilities, and environmental variables.
Even if IT competence and environmental turbulence (along with some control variables) help
explain a substantial variation in resource reconfigurability, other antecedents may be needed for better
prediction. For example, dynamic capabilities are influenced by willingness to take risks (Eisenhardt,
1989), and the emotional inability to cope with risk is a major factor that holds back managers in highvelocity markets. In addition, insufficient knowledge sharing, lack of trust, and agency problems may
impede dynamic capabilities. Similarly, IT adoption issues may inhibit IT competence. Future research
should examine a more comprehensive set of antecedents for the studys principal constructs.
While this study viewed NPD as an overall process, the proposed model may not accurately
apply to all stages o f the NPD process (Song & Parry, 1997a). For example, dynamic capabilities may be
more important in earlier than later stages. Future research should examine different stages of the NPD
process to determine the exact role and value of different capabilities on each stage.
From an empirical standpoint, a potential limitation comes from the sample of respondents, and
its ability to generalize to other contexts. Other limitations o f the study are the use of single informants
and the lack of objective performance measures from secondary sources. Even if dyadic data were
collected for some inter-organizational partnerships, future research could collect data from multiple
respondents with different roles in the organization. Similarly, even if self-reported measures were
collected, future research should attempt to collect performance measures from less biased sources.
Even if this study combined inter-organizational with intra-organizational NPD projects, future
research should examine potential differences between internal projects and those of the extended
enterprise. While NPD processes may not differ significantly when expanding organizational boundaries,
dynamic capabilities in other contexts may be substantially different. Finally, cross-cultural differences
might have influenced how NPD teams work together. For example, a strong collectivist culture can
facilitate the development of dynamic capabilities, such as a collective mind. Future research could
examine cross-cultural or international aspects of dynamic capabilities and identify potential differences.

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6. Conclusion
The dynamic capabilities perspective is a fruitful area for combining IS and strategic
management theory since IT can enable gaining a sustainable competitive advantage by supporting
dynamic organizational processes (Zahra & George, 2002b). This study provides an initial theory-driven
perspective on understanding the role of IT as an essential platform for building dynamic capabilities for
competitive advantage in turbulent environments. In doing so, it aims to describe the role of IT-enabled
dynamic capabilities in a NPD context, a promising, yet under-researched area in the IS literature
(Nambisan, 2003). This study thus aims to entice future research on understanding the strategic role of IT
in dynamic environments and its potential outcomes in NPD.

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