Professional Documents
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by
Pavlos A. Pavlou
May 2004
Copyright 2004
Pavlos A. Pavlou
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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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TABLE OF CONTENTS
ACKNOWLEDGMENTS
List of Tables
List of Figures
ABSTRACT
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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 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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LIST OF FIGURES
Figure 1. The Nature of Resource Reconfigurability
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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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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.
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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.
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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).
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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.
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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.
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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).
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4. Dissertation Contribution
This dissertation aims to make contributions to theory, empirical research, and practice, as
described below:
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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.
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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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Competitive
Advantage
Resource
Reconfigurability
Coordination
Competence
Absorptive
Capacity
Collective
Mind
Market
Orientation
DYNAM IC CAPABILITIES
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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.
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capabilities as discrete versus systemic resources; Black and Boal (1994) refer to resources and
capabilities as traits and configurations, respectively.
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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).
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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).
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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.
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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.
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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.
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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).
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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.
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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).
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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.
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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.
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).
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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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.
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).
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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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.
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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.
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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.
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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.
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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).
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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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absorptive capacity develops through repetitive collective action and systemic interaction routines
(Badaracco 1991, Kogut and Zander 1992).
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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.
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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.
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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.
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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.
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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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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.
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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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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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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).
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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.
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).
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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.
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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).
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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.
Customer
Competence
Technological
Turbulence
Strategy
Environment
ALIGNMENT
Market
Turbulence
ENVIRONMENTAL
TURBULENCE
Technical
Competence
Managerial
Competence
Competitive
Advantage
NPD FUNCTIONAL
COMPETENCE
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:
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.
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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).
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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.
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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.
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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:
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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).
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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).
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R esource
R econfigurability
IT Competence
in NPD
Project/Resource
Management
Systems
Knowledge
Management
Systems
Cooperative
Work
Systems
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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.
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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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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.
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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:
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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.
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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.
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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.
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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:
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.
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information increased the disposition to interrelate actions (Weick & Roberts, 1993), thus facilitating a
collective mind. The aforementioned arguments suggest:
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.
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.
____________________________ 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.__________________________________________________________________
_________________________________ 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.________
____________________________ 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.____________
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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.
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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7.7 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.
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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).
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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.
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.
representation at .92, and interrelation at .72), all significant at the p<.001 level.
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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.
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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.
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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.
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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.
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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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.
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.
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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).
18 Evidence shows that results of NPD studies may differ if the key respondents are senior versus mid-level
managers.
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I ll
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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
5.2
Market Turbulence
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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
_________________________________
How many functional areas (e.g., R&D, marketing) are represented in this NPD group?
_____________________________
_____________________
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._______________
years._____________________________________________
___________________________________ 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?________%___________________________________
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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.
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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.
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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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
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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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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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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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.
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
93
2,270
2.5
3.6
2.2
4.7
3.2
2.0
4.4
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
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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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
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 )
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 )
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
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
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
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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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129
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.
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130
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.
Independent Variables
R esource Reconfigurability
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.
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131
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).
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.
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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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).
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
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
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
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
A s
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.
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*
.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
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
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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.
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
Figure 10. Model C om parison for High Vs Low T urbulence E nvironm ents
Resource
Reconfigurability
IT Competence
Competitive
Advantage
.62**
.53
Strategy Environment
ALIGNMENT
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.
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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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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.
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143
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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144
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).
DIRECT VIEW
Competitive
Advantage
IT Competence
STATIC VIEW
Functional
Competencies
IT Competence
Competitive
Advantage
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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145
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.
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146
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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147
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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148
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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149
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.
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150
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.
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151
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.
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152
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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153
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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154
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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155
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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