Long Range Planning: Stav Fainshmidt, M. Lance Frazier

Long Range Planning 50 (2017) 550e566
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Long Range Planning

journal homepage: http://www.elsevier.com/locate/lrp
What Facilitates Dynamic Capabilities? The Role of

Organizational Climate for Trust
Stav Fainshmidt, M. Lance Frazier
While dynamic capabilities are important for competitive advantage, the antecedents of dynamic capabilities remain understudied.
Because dynamic capabilities rely on collective learning and coordinated effort by organization members, the organization’s social
climate, which shapes patterns in attitudes, behaviors, and interpersonal relationships among organizational members, may be a driver of
dynamic capabilities. Specifically, employing social exchange and social information processing perspectives, we argue that organizational
climate for trust facilitates adaptability and coordination among organization members, and thus enhances the firm’s sensing, seizing, and
reconfiguring capabilities that in turn affect competitive advantage. Utilizing survey data from 209 Israeli firms, we find support for our
theoretical predictions. However, we also find that climate for trust has a direct relationship with competitive advantage. Our study
advances understanding of the antecedents of dynamic capabilities by highlighting the importance of organizational climate for trust as a
social underpinning of dynamic capabilities and competitive advantage.
© 2016 Elsevier Ltd. All rights reserved.
Introduction
While proliferating empirical evidence and theoretical work suggests that dynamic capabilities are important to
competitive advantage (e.g., Drnevich and Kriauciunas, 2011; Schilke, 2014a, 2014b; Stadler et al., 2013; Wilden et al., 2013),
what drives dynamic capabilities remains an open question (Danneels, 2008; Dixon et al., 2010; Foss et al., 2012; Wang et al.,
2015; Zollo and Winter, 2002). Kleinbaum and Stuart (2014, p. 353) have recently noted that “the patterns in the interpersonal
relationships among organizational members […] are of importance because they are the metaphoric foundation on which all
coordinated activity in organizations takes place.” However, although prior literature does recognize that dynamic capabil-
ities encompass collective learning and coordinated effort by organization members (Helfat and Winter, 2011; Schreyo €gg and
Sydow, 2010), their social foundations remain largely unexplored (Helfat and Peteraf, 2015; Wilden et al., 2016).
In this study, we shed further light on the socio-cognitive underpinnings of dynamic capabilities by explicitly considering
the role of organizational climate. A rich tradition in the social sciences maintains that organizations contain a social climate,
which reflects the nature of the organization’s social system, or its normative “infrastructure”. Through social information
processing and social exchange, organizational climates serve to shape organization member behaviors and attitudes that
translate into organizational outcomes (Denison, 1996; Hellriegel and Slocum, 1974; Salancik and Pfeffer, 1978). Indeed, prior
studies show that organizational climates may affect the organization’s innovation, growth, aggregate productivity, and
financial performance (e.g., Baer and Frese, 2003; Collins and Smith, 2006; Hansen and Wernerfelt, 1989; Menges et al., 2011).
Building on Teece (2007), we explicate that the dynamic capabilities of sensing, seizing, and reconfiguring are affected by
the workplace context which shapes organization member social interaction (Gavetti, 2005; Staats, 2009). Specifically, we
focus our attention on climate for trust, defined as a “shared psychological state among organizational members comprising
willingness to accept vulnerability based on positive expectations of a specific other or others” (Fulmer and Gelfand, 2012, p.
1174). Prior research has argued that climate for trust is foundational in that it has a broad “bandwidth” on which more
specific climates can develop (e.g., voice climate; Frazier and Fainshmidt, 2012; Schneider et al., 1998) and it serves as a
foundation for a range of sustained organization member attitudes, behaviors, and social exchange practices (Schneider et al.,
2000; Wallace et al., 2006). As “the firm’s ability to coordinate and to adapt… are both crucial aspects of dynamic capabilities”
(Kleinbaum and Stuart, 2014, p. 353), climate for trust is particularly relevant because it encourages change-oriented attitudes
and behaviors (i.e., adaptability; Baer and Frese, 2003; Carroll et al., 2006), as well as cultivates cooperative efforts (i.e., co-
ordination) among organization members (Collins and Smith, 2006; Dirks and Ferrin, 2001). Consequently, we argue that a
http://dx.doi.org/10.1016/j.lrp.2016.05.005
0024-6301/© 2016 Elsevier Ltd. All rights reserved.
S. Fainshmidt, M.L. Frazier / Long Range Planning 50 (2017) 550e566 551
climate for trust should enhance the organization’s ability to sense and seize opportunities in the environment and to more
efficiently reconfigure the resource base.
Our aim is to contribute to existing literature in at least three important ways. First, our study adds to a strand of research
concerned with drivers of dynamic capabilities, or their antecedents (e.g., Abell et al., 2008; Gavetti, 2005; Helfat and Peteraf,
2015; Moliterno and Wiersema, 2007; Zollo and Winter, 2002). We do so by elucidating the role of organizational climate for
trust, an intra-organizational contextual mechanism, in shaping dynamic capabilities. Our study thus complements previous
literature that focuses more on external or upper echelon drivers of dynamic capabilities. While the importance of the or-
ganization’s social system, and trust in particular, as likely drivers of dynamic capabilities, has been mentioned (e.g., Gibson
and Birkinshaw, 2004; Helfat and Peteraf, 2015; Pablo et al., 2007), our explicit coupling of organizational climate for trust
with sensing, seizing, and reconfiguring dynamic capabilities is a novel addition to the dynamic capabilities view.
Second, the strategy literature recognizes that organizational climates are important to competitive advantage and firm
performance (e.g., Danneels, 2008; Gibson and Birkinshaw, 2004; Hansen and Wernerfelt, 1989; Ray et al., 2004). Yet, the
mechanisms by which organizational climates matter to organizational outcomes are not well understood. Our paper helps
uncover how organizational climates may translate into important firm outcomes, namely by facilitating dynamic capabil-
ities. In doing so, we add to a growing “strategic organizational behavior” research stream whereby constructs, theories, and
phenomena typically examined under the umbrella of micro-organizational behavior and organizational psychology are
integrated into the strategy conversation (Ployhart, 2015). Relatedly, we advance the organizational climate and trust liter-
atures by theoretically and empirically investigating the nature and scope of climate for trust’s implications for organizations
(Fulmer and Gelfand, 2012).
Finally, we provide one of the few empirical tests of the sensingeseizingereconfiguring framework (Teece, 2007), as well
as its impact on competitive advantage. Most research on this framework to date has been conceptual; an empirical analysis
helps to provide validity to the framework, as well as bring about ways to refine it (Wilden et al., 2013). As noted by Giudici
and Reinmoeller (2012, p. 445), “we need much more empirical research on dynamic capabilities…, [C]arefully crafted
empirical work would enhance the chances of challenges to the construct’s validity being overcome”.
The remainder of this paper is structured as follows. In the next section, we establish our study’s conceptual framework for
dynamic capabilities and their drivers, highlighting the importance of the organizational social context. Next, we develop
hypotheses explicating the role of climate for trust as an antecedent to sensing, seizing, and reconfiguring dynamic capa-
bilities and, consequently, competitive advantage. We then provide a detailed account of the data and analyses utilized to test
our hypotheses, followed by the study’s empirical results. We end with a discussion of our study’s implications and limita-
tions that provide several directions for future inquiry.
Theoretical framework
Dynamic capabilities of the firm
The term ‘capability’ refers to a routine-based activity inside the firm, which develops over time through problem-solving
and collective learning (Schreyo €gg and Kliesch-Eberl, 2007; Winter, 2003). According to Helfat and Winter (2011, p. 1244), a
capability is in place when “the organization (or its constituent parts) has the capacity [i.e., is able] to perform a particular
activity in a reliable and at least minimally satisfactory manner.” What makes capabilities ‘dynamic’ is their change-oriented
nature (Eisenhardt and Martin, 2000; Teece et al., 1997). Dynamic capabilities are “high performance routines” (Teece and
Pisano, 1994, p. 537) that alter the way an organization makes its living and “promote economically significant change…,
even if the pace of change appears slow or undramatic” (Helfat and Winter, 2011, p. 1249). Helfat et al. (2007, p. 4) build on
previous literature and define dynamic capabilities as the “capacity of an organization to purposefully create, extend, or
modify its resource base”.
Teece (2007) maintains that dynamic capabilities can be disaggregated into three interrelated capabilities: sensing,
seizing, and reconfiguring (hereafter: SSR). Sensing involves activities of scanning, search, and exploration aimed at gathering
information and learning about markets, customers, competitors and the external environment at large (Augier and Teece,
2009). Seizing includes “the [systematic] evaluation of existing and emerging capabilities” (Wilden et al., 2013, p. 74),
which “can entail making large and sometimes irreversible investments in tangible and intangible assets” (Helfat and Peteraf,
2015, p. 840). Finally, reconfiguration encompasses activities that recombine bundles of resources and ordinary capabilities
(Sirmon et al., 2011; Wilden and Gudergan, 2015) in an attempt to “maximize complementarities inside and outside the
enterprise” (Teece, 2012, p. 1398).
Consistent with Teece (2007), Wilden and Gudergan (2015) demonstrate empirically that SSR capabilities are interrelated
(also see Martin, 2011). Danneels (2015, p. 11) indeed notes that “sensing and seizing could be considered precursors or
antecedents to resource reconfiguration”. A stronger sensing capability generates new information flows about opportunities
and threats, which may result in the seizing of new opportunities and/or the recombination of existing ordinary capabilities
and resources. In other words, sensing capability demarcates the firm’s potential to change; it enhances reconfiguration and
seizing capabilities but in and of itself does not necessarily reflect implementation. As such, sensing capability is expected to
serve as a distal antecedent to competitive advantage, and the advantages that an organization may accrue from a sensing
capability come about through seizing or reconfiguring activities (Teece, 2007; Wilden and Gudergan, 2015).
552 S. Fainshmidt, M.L. Frazier / Long Range Planning 50 (2017) 550e566
Similarly, systematic seizing of new opportunities is likely to change the organizational resource base, and thus invoke
more frequent reconfiguration activities. However, Helfat and Peteraf (2009) explain that seizing capability may create new
paths and valuable resource bundles, which does not always result in internal change through reconfiguration. This logic
suggests that seizing capability may contribute to competitive advantage above and beyond its contribution through
reconfiguration capability. Finally, reconfiguration capability generates value by introducing innovative changes to the
resource base (Fang and Zou, 2009; Helfat, 1997; Peteraf et al., 2013; Zollo and Winter, 2002) and increasing the organization’s
likelihood of congruence with the environment (Drnevich and Kriauciunas, 2011; Schilke, 2014b; Stadler et al., 2013; Teece,
2007, 2014), both of which entail a contribution to competitive advantage (Isobe et al., 2008; Martin, 2011; Sirmon and Hitt,
2009; Teece, 2007).
Some scholars have argued that dynamic capabilities may not necessarily lead to competitive advantage (Ambrosini and
Bowman, 2009). Importantly, Eisenhardt and Martin’s (2000) view of dynamic capabilities as ‘best practices’ implies that they
are susceptible to imitation by other organizations. From this perspective, limited variance in dynamic capabilities should be
expected across firms, and any competitive advantage that may result from dynamic capabilities would be “rather small and
insignificant” (Peteraf et al., 2013, p. 1395).
However, even if dynamic capabilities are best practices, these practices tend to be valuable and at least somewhat rare
(Sirmon et al., 2010). Best practices are not always implemented by all organizations (Powell, 1995). Even when they are
implemented, they are not done so with the same skill and frequency across organizations, which would create differentials in
performance (Schilke, 2014b; Stadler et al., 2013; Teece, 2014). Furthermore, because such best practices are “idiosyncratic in
their details” (Eisenhardt and Martin, 2000, p. 1105), imperfectly mobile, and learned through repeated engagement as or-
ganizations respond to their environment (King and Tucci, 2002; Winter, 2012; Zollo and Winter, 2002), “there could be an
appreciable and difficult-to-imitate value added to the most experienced firms” (Fainshmidt et al., 2016, p. 5; Peteraf et al.,
2013). For instance, dynamic capabilities “may result in significant performance differentials” because they “allow the or-
ganization to accumulate knowledge about how to change and with fewer costs, and thus increase congruence with the
environment” (Fainshmidt et al., 2016, p. 5; Zott, 2003). This also supports the notion that the level of dynamic capabilities
should vary across firms (Winter, 2000).
Drivers of SSR capabilities
While conceptual and empirical literature have examined some internal and external drivers of dynamic capabilities in
general (e.g., Danneels, 2008; Wang et al., 2015; Zollo and Winter, 2002), explicit investigations of antecedents to SSR ca-
pabilities are less common (Ambrosini and Bowman, 2009; Helfat and Peteraf, 2009). For instance, Danneels (2008) shows
that organizational characteristics, such as a willingness to cannibalize on valuable assets and productive activities, contribute
to the firm’s marketing and technological dynamic capabilities. He also highlights the role of organizational climate conducive
to constructive conflict and tolerance for mistakes as a precursor to these two dynamic capabilities, an important point we
build on below.
Research on dynamic managerial capabilities, a micro-foundation of dynamic capabilities, focuses on the role of top
managers, as opposed to processes within the organization at large, in systematically affecting strategic change (e.g., Helfat
and Martin, 2015; Rodenbach and Brettel, 2012; Sirmon and Hitt, 2009; Tripsas and Gavetti, 2000). Within that realm, prior
studies have argued that SSR capabilities are affected by mental and emotional capacities of top managers (Helfat and Peteraf,
2015; Hodgkinson and Healey, 2011), managerial perceptions of the environment (Aragon-Correa and Sharma, 2003; Tripsas
and Gavetti, 2000), success traps (Wang et al., 2015), upper echelon group dynamics (Martin, 2011), and top managers’ skills
and social capital (Adner and Helfat, 2003).
Kleinbaum and Stuart (2014) and Wilden et al. (2016) highlight the importance of organization member social interactions
for the firm’s ability to adapt and coordinate change in the resource base. Many of the activities comprising SSR capabilities
rest on the ways in which organization members interact with each other (Capron and Mitchell, 2009; Gavetti, 2005;
Kleinbaum and Stuart, 2014; Staats, 2009). These interactions are affected by top management (Dickson et al., 2001), but
may extend beyond upper echelons to represent a “collectively shared ‘way of problem-solving’ ” (Schreyo €gg and Kliesch-
Eberl, 2007, p. 915). Indeed, prior studies suggest that the organization’s social context, which shapes attitudes, behaviors
and interpersonal relationships among organization members, is an important enabler of the adaptability and coordination
driving dynamic capabilities (Argote and Ren, 2012; Montealegre, 2002).
Organizational climate as social context
According to Glick (1985, p. 613), organizational climate describes “the organizational context for individuals’ actions” and
is a concept related to, yet distinct from, culture. Climate represents the meaning that organization members attach to their
experiences in the workplace, while culture represents the underlying assumptions and values that drive those tangible
experiences (Schneider et al., 2013). In other words, climate is the current manifestation of more abstract and deeply-rooted
organizational cultural values (Marcoulides and Heck, 1993), and can be expressed in terms of interpersonal relationsand
meanings “that ultimately produce the tangible outcomes” (Baer and Frese, 2003, p. 48). In this way, organizational climates
capture observable social attributes “that are closer to the ‘surface’ ” of the organization (Denison, 1996, p. 622) and that serve
to inform organization member sense-making and interpersonal actions within that system (Arnaud and Schminke, 2012;
Klein et al., 1994).
The theoretical premise underlying the organizational climate concept is rooted in social information processing and
social exchange theories (Cropanzano and Mitchell, 2005; Salancik and Pfeffer, 1978). The former argues that employees look
to their environment for social cues about “how one ought to behave in a particular situation” (Cameron and Webster, 2011, p.
756) and then translate this information into attitudes and actions. The latter maintains that work context shapes the quality
of exchange between organization members, which consequently affects work outcomes. From these perspectives, it is
through exposure to similar “social interactions, and selection, attrition, and socialization processes that members of the
same organization develop shared perceptions of an organizational climate” (Gupta et al., 2007, p. 229).
According to Bhave et al. (2010, p. 4), organizational climate may “make specific environmental attributes salient and
ensure that individuals assign a higher weight to such attributes…, and provide cues about how others in the organization
evaluate the work environment.” Because one’s understanding of the nature of exchange will be influenced by perceived
social cues, social information processing and social exchange theories go hand in hand in explaining the outcomes associated
with organizational climate. That is, social information processing and social exchange theories create a direct link between
the social environment at work (i.e., organizational climate) and job attitudes and behaviors that translate into tangible work
outcomes (Chen et al., 2013; Pfeffer, 1983; Zalesny and Ford, 1990).
Prior studies have shown that organizational climates are consequential at the organizational level (e.g., Baer and Frese,
2003; Carmeli, 2007; Cataldo et al., 2009; Collins and Smith, 2006; Danneels, 2008; Durcikova et al., 2011; Hansen and
Wernerfelt, 1989; Huff and Kelley, 2003, 2005; Marcoulides and Heck, 1993; Menges et al., 2011; Ruppel and Harrington,
2000). Though there are a number of climates that have been introduced in the literature, the foundational climate for
trust, with its facilitation of adaptability and coordination among organization members (Carroll et al., 2006; Collins and
Smith, 2006), is particularly important for dynamic capabilities (Kleinbaum and Stuart, 2014). Indeed, prior research (e.g.,
Gibson and Birkinshaw, 2004; Helfat and Peteraf, 2015) recognizes that dynamic capabilities may be enabled “by facilitating
the development of trusting relationships within the organization” (Pablo et al., 2007, p. 703). Hence, in the following section,
we focus our attention on climate for trust as an antecedent of SSR capabilities.
Climate for trust and SSR capabilities
Climate for trust, according to Poon (2003, p. 142), refers to the extent to which members within the organizational social
system “have positive expectations regarding the motives, intentions, and prospective actions of other members”. It therefore
represents a shared willingness to accept vulnerability to others in the organization (Fulmer and Gelfand, 2012). McEvily et al.
(2003) identify trust as a social organizing principle that entails two main benefits. First, a climate for trust may facilitate
stable and enduring social interaction patterns among organization members. For instance, prior studies have shown that
commitment, information-sharing, and citizenship behaviors are collaborative workplace behaviors and attitudes associated
with trust (Colquitt et al., 2007; Dirks and Ferrin, 2001). Consequently, climate for trust within the organization has been
shown to be crucial to intra-firm coordination processes (Collins and Smith, 2006; Stahl et al., 2011).
Second, climate for trust motivates actors to contribute in new ways and engage in change-oriented behaviors. Here, prior
trust research documents associated adaptive attitudes and behaviors such as creativity, voice behaviors, and reduced
counterproductive behaviors (Colquitt et al., 2007; Dirks and Ferrin, 2001). Climate for trust also facilitates a willingness to
change (Sonpar et al., 2009), while encouraging learning through experimentation (Pablo et al., 2007; Schilke and Cook,
2015). In other words, climate for trust minimizes concern of vulnerability and allows employees to innovate. Conversely,
when climate for trust is low, employees are often “distracted from purposeful and efficient task pursuit” (Menges et al., 2011,
p. 897).
Climate for trust and sensing capability
Important information about the organization’s environment resides in the minds of organization members as they
interact with a multitude of stakeholders (Blyler and Coff, 2003). Utilizing this knowledge and social capital is likely to in-
crease the organization’s ability to sense opportunities and threats (Kleinbaum and Stuart, 2014). Teece (2007, p. 1323) indeed
explains that organizations must accumulate “information from professional and social contacts to create a conjecture or a
hypothesis about the likely evolution of technologies, customer needs, and marketplace responses”. Yet, in order for such new
information flows to take place, employees must perceive that the work context provides an environment in which these
interactions are accepted and encouraged (Nembhard and Edmondson, 2011). A climate for trust enhances employee psy-
chological safety and positive affect (Carmeli and Gittell, 2009; Edmondson, 2004; Schulte et al., 2012), which encourages
organization members to share novel ideas and insights (Gong et al., 2012).
In addition, there is some degree of personal risks associated with challenging the status-quo, and experimentation often
leads to some level of failure that may be viewed negatively (Edmondson, 1999). Yet, experimentation often yields novel
insights, making it crucial to the sensing process. Hence, employees must perceive that suggesting change is not overly risky
(Danneels, 2008; Detert and Burris, 2007). A climate for trust reduces the anxiety associated with experimentation and
change. As noted by Edmondson and Lei (2014, p. 25), “people are more likely to believe they will be given the benefit of the
doubt… when relationships… are characterized by trust and respect.” Indeed, Danneels (2008) and Zollo and Winter (2002)
maintain that collective learning occurs in a social context where employees express their views freely and confront each
other constructively, leading to the articulation of viable tacit knowledge. Taken together, a climate for trust, due to its
facilitation of change-oriented and cooperative attitudes and behaviors among organization members, may enable organi-
zations to systematically recognize new opportunities and threats otherwise not identified. Formally stated:
Hypothesis 1. Organizational climate for trust is positively related to sensing capability of the firm.
Climate for trust and seizing capability
Seizing opportunities in a timely manner may require efficient dissemination of knowledge and conflict minimization
(Helfat and Peteraf, 2015). According to Collins and Smith (2006, p. 548), a climate for trust “increases the chances for ex-
change”, as well as increases organization members’ willingness to rely on new knowledge received from peers (Mayer and
Gavin, 2005), thus facilitating faster knowledge flow throughout the organization (Gupta et al., 2007; Quigley et al., 2007).
This should enhance the organization’s capability to seize opportunities because larger flows of new information within the
organization allow a better evaluation of emerging opportunities (Eisenhardt, 1989; Zollo and Winter, 2002).
Similarly, the generation of broad ‘know-how’ facilitated by a climate for trust (Edmondson and Lei, 2014) may enable a
more timely capture of fleeting opportunities. Seizing may involve the mobilizing and investment of resources (Helfat and
Peteraf, 2015), which requires that various parts of the organization be well-coordinated and committed to new initia-
tives. Otherwise, organizational efforts to seize fleeting opportunities may take much longer, or even go unrealized. In that
regard, a climate for trust is likely to result in “enthusiastic cooperative and innovative effort beyond that gained from simple
financial incentives or contracts” (Ruppel and Harrington, 2000, p. 319). As noted by Helfat and Peteraf (2015), a climate for
trust may reduce the costs of coordination because organization members tend to utilize heuristics over a more calculative
approach when assessing peers. Prior research indeed documents that a climate for trust enhances communication effec-
tiveness and commitment to new strategic initiatives (Dirks and Ferrin, 2001; Roberts and O’Reilly, 1974; Webber, 2002; Zand,
1972). We therefore put forth the following:
Hypothesis 2. Organizational climate for trust is positively related to seizing capability of the firm.
Climate for trust and reconfiguring capability
Reconfiguration involves the adaptation, integration, and redeployment of assets and operational capabilities (Helfat and
Peteraf, 2015). Organizations may develop a higher reconfiguration capability based on cumulative knowledge of how to
efficiently implement internal change (Zott, 2003). This stock of tacit knowledge residing in organization members allows the
firm to readily mobilize and combine resources toward collective action (McEvily et al., 2003; Sirmon et al., 2007). A climate
for trust encourages change-oriented behaviors among employees, thus facilitating the internal accumulation and mobili-
zation of such firm-specific know-how relevant to change (Wang et al., 2009). For instance, de Jong and Elfring (2010) found
that trust facilitated adaptable team processes that allowed ongoing responses to change that ultimately enhanced
performance.
Additionally, as resources and capabilities tend to be dispersed throughout the organization, reconfiguring necessitates
smooth interactions among organizational units. A climate for trust serves as a social cue to organization members that
cooperative behavior is a norm, which provides the social capital necessary to facilitate the exchange of relevant resources
when there is a need for reconfiguration. In a trusting work environment, the intentions and motivations of others have been
adequately communicated, which reduces the likelihood of relational conflict and thus makes resource integration faster (Lin
et al., 2016; Sonpar et al., 2009). Indeed, prior research suggests that a climate for trust may increase employee affective
commitment to, as well as actual implementation of, innovative internal changes (Michaelis et al., 2009). In sum, the ar-
guments above support the following:
Hypothesis 3. Climate for trust is positively related to reconfiguration capability of the firm.
Climate for trust, dynamic capabilities, and competitive advantage
Prior research has provided support for the important role of organizational climate in achieving competitive advantage
(e.g., Hansen and Wernerfelt, 1989; Huff and Kelley, 2005; Ray et al., 2004). For instance, Baer and Frese (2003) show that
climates for initiative and psychological safety positively affect firm financial performance and goal achievement. More recent
literature has begun uncovering the mechanisms through which organizational climate for trust may be translated into
competitive advantage. For instance, Collins and Smith (2006) document a positive effect of climate for trust on revenue from
new products, occurring via cooperative sharing of new knowledge within the firm. Our study extends this past research by
further elucidating these mechanisms. In bringing together the theoretical arguments of our study, we suggest that climate
for trust will enhance the organization’s SSR capabilities by facilitating adaptive and coordinated attitudes and behaviors
among organization members. These capabilities are interrelated, and seizing and reconfiguring are expected to impact the
firm’s competitive advantage, as discussed earlier. Therefore, we formulate the following as an integration of our entire
research model:
Hypothesis 4. Climate for trust has a positive indirect relationship with competitive advantage through the dynamic capabilities
of sensing, seizing, and reconfiguring.
It is important to note that, though we expect a significant and positive correlation between climate for trust and
competitive advantage, a requirement in traditional mediation testing (Baron and Kenny, 1986), we do not suggest that
dynamic capabilities are the only path by which climate for trust may impact competitive advantage. Indeed, in order “to
claim full mediation, one would have to have confidently measured d without error d all possible mediators and sup-
pressors” (Rucker et al., 2011, p. 369). Therefore, in our hypothesis, we focus on indirect effects rather than mediation, which
allows for the possibility that there may be other pathways by which climate for trust influences competitive advantage, but
also does not preclude the existence of direct effects along with an indirect effect (Aguinis et al., 2016).
Methods
Sample and procedure
Data about firm-level SSR capabilities and organizational climate are usually not available via archival sources. Hence, to
test our hypotheses, we designed a survey-based study in Israel, targeting key organizational informants knowledgeable of
these aspects. Due to its relatively small size and market-based economy (Fainshmidt, 2012), Israel provided a suitable
context to sample relatively smaller enterprises and study critical firm capabilities for competitive advantage. Having a
sample of relatively smaller firms was beneficial because larger firms would have possibly made managers’ assessment of
climate for trust less accurate. The bigger the organization is, the more likely that several different sub-climates may emerge
in different organizational units (Weber, 1995).
We first created a survey instrument to measure the focal constructs. We then translated and back translated the ques-
tionnaire, using the services of two bi-lingual experts and three executives and business owners, in order to better
communicate the items in Hebrew. To administer the survey, we employed a call center with vast prior experience with data
collection from managers for academic research (cf. Schilke, 2014a). During the period for which we hired the call center’s
services, they randomly sampled and contacted firms from the Dun and Bradstreet Israel Business Guide (DUNSGuide, 2014),
a comprehensive commercial database listing contact details and general information (e.g., industry of operation, number of
employees, year of establishment) on firms located in Israel. A member of the research team was able to visit the center twice
during the survey period and observed their method of work.
We did not impose any restrictions on the characteristics of sampled firms in order to increase generalizability and ensure
that the random sampling process is not contaminated. However, we did require that respondents be in charge of the focal
firm (e.g., CEO), or at least be part of the top management team (e.g., CFO, VP of marketing). This was important in order to
ensure that the respondents had relevant information regarding SSR capabilities, competitive advantage, and organizational
climate (Danneels, 2008). In particular, top executives are in a good position to evaluate foundational organizational climates
(Huff and Kelley, 2005).
At the end of the contractual agreement, the call center provided us with all needed data and information. They were able
to survey 249 firms, out of a total of 1257 contacted, for a response rate of approximately 19.8%, which is consistent with prior
studies based on key informant data (Schilke, 2014a). Consistent with recommendations by Hawthorne and Elliott (2005), we
impute missing data for each scale using the person mean substitution, only when one scale item was missing for a particular
case. Otherwise, we removed the observation from our sample. This procedure resulted in a final sample size of 209 firms.
Descriptive characteristics of our sample are presented in Appendix A. Firms operated in a variety of industries and were of
various ages, and all informants were in their position for at least six months. Further, while the sample contains few rela-
tively larger firms, the majority had up to 100 employees.
The call center supplied us with a comparison of the proportions of contacted and responding companies by number of
employees and industry. We used this information to assess non-response bias by conducting a proportion z-test for dif-
ferences between the randomly contacted sample and respondents. This analysis showed proportions were similar, which
suggests non-response bias is not a major concern in our study.1
We asked respondents whether their firm operated in more than one industry, as diversified firms may have more than
one business unit. In multi-business firms, organizational climates and capabilities may differ substantially across units.
Fifteen firms in our sample reported to be operating in more than one line of business. However, nine of these operated in
closely-related sub-industries, or had only inconsequential operations in a second industry (i.e., less than 10% of total op-
erations). The remaining six firms were categorized into an industry group based on the industry in which the majority of
their operations took place. Four of these also had 50 employees or less, and did not report that there was separation into sub-
units. The removal of the remaining two firms did not alter the study’s results.
1
The z-score for each difference is calculated as: Z ¼ (P-p)/√[(P*q)/N)], where P is the proportion in the full sample, p is the proportion in the subsample,
q is equal to 1-P, and N is the sample size. Then, a two-tailed z-score test is performed.
Table 1
Measurement scales and reliability
Construct Source Items Cronbach’s CR AVE Highest

a shared
variance
Competitive Schilke 1. We have gained strategic advantages over our competitors. 0.82 0.83 0.62 0.14
advantage (2014a) 2. We have a large market share.
3. Overall, we are more successful than our major competitors.
Sensing Wilden et al. 1. In my organization, people participate in professional 0.60 0.61 0.30 0.24
capability (2013) association activities.
2. We use established processes to identify: (1) target market
segments, (2) changing customer needs, and (3) customer
innovation.
3. We observe best practices in our sector.
4. We gather economic information on our operations and
operational environment.
Seizing Wilden et al. 1. We invest in finding solutions for our customers. 0.66 0.70 0.40 0.32
capability (2013) 2. We adopt the best practices in our sector.
3. We respond to defects pointed out by employees.
4. We change our practices when customer feedback gives us a
reason to change.
Reconfiguration Wilden et al. 1. We constantly implement new kinds of management 0.82 0.83 0.56 0.32
capability (2013) methods.
2. We frequently change our marketing method or strategy.
3. We substantially renew business processes.
4. We constantly and substantially renew the ways of achieving
our targets and objectives.
Climate Huff and 1. There is a very high level of trust throughout this 0.87 0.87 0.63 0.24
for trust Kelley (2003) organization.
2. In this organization, subordinates have a great deal of trust for
managers.
3. If someone in this organization makes a promise, others
within the organization will almost always trust that the person
will do his or her best to keep the promise.
4. Managers in this company trust their subordinates to make
good decisions.
Amiability International 1. I seldom get angry 0.85 0.81 0.48 0.07
(marker Personality 2. I rarely get annoyed
variable) Item Pool 3. I seldom get offended
(2013) 4. I rarely complain
5. I do not become angry easily
Measurement
Measurement scales for our study were obtained from prior studies. Table 1 lists the source of the scales, as well as the
items and reliabilities for each scale. All items are reflective of their corresponding constructs, and were measured on a seven
point Likert-type scale (1 ¼ strongly disagree to 7 ¼ strongly agree). The constructs exhibited high levels of reliability
(Cronbach’s a > 0.70), except for sensing (a ¼ 0.60) and seizing capabilities (a ¼ 0.66) which exhibited adequate levels (Clark
and Watson, 1995). However, when looking at the composite reliabilities (Fornell and Larcker, 1981), seizing capability does
reach the 0.70 threshold recommended by Hair et al. (1998). Moderate reliabilities are not uncommon with lower number of
items (see Swailes and McIntyre-Bhatty, 2002) and scales at the early stage of development (Cronbach, 1951; Nunnally,
1978).2 In addition, such reliability levels lower “the expected observed correlation and the power to detect it with a con-
stant sample size”, thus putting our hypotheses to a more conservative test (Lance et al., 2006, p. 206). Additionally, we
address measurement error by utilizing structural equation modeling, as discussed next.
Although there are limited empirical articles that have examined specifically SSR capabilities, the recent work of Wilden
et al. (2013) provides items to capture them. Therefore, we measured the three SSR capabilities using the twelve items
outlined in Wilden et al. (2013); each capability was reflected in four items that capture relevant systematic activities within
the firm. To measure climate for trust, we used Huff and Kelley’s (2003) 4-item scale. The items were adapted to reflect firm-
level climate (Baer and Frese, 2003). We measured competitive advantage using three items taken from Schilke (2014a).
We also utilized several control variables to account for other relevant influences. First, we controlled for firm size,
measured as the natural logarithm of the number of employees at the time of the survey (Li-Ying and Wang, 2015). Larger
firms may have more resources at their disposal, and are generally more bureaucratic than smaller firms, which may affect the
2
We calculated Cronbach’s (1951) correction factor for length of scale. This statistic is given by the formula: p ¼ a/[n-(n-1)*a], where a is Cronbach’s alpha
and n is the number of items in the scale. For sensing capability the correction factor was 0.27 and for seizing capability it was 0.33, indicating sufficient
convergence for such broad constructs (Clark and Watson, 1995; Voss et al., 2000).
Table 2
Descriptive Statistics and Correlations
Variable Mean SD 1 2 3 4 5 6 7 8 9 10
1. Sensing Capability 4.90 1.11 1.00
2. Seizing Capability 6.02 0.79 0.45 1.00
3. Reconfiguration Capability 5.35 1.03 0.49 0.57 1.00
4. Climate for Trust 5.90 0.79 0.19 0.40 0.49 1.00
5. Competitive Advantage 5.18 1.23 0.29 0.34 0.38 0.34 1.00
6. Amiability (Marker Variable) 5.21 1.39 0.18 0.15 0.16 0.26 0.11 1.00
7. Firm Size 4.09 1.37 0.28 0.11 0.16 -0.11 0.15 0.10 1.00
8. Firm Age 30.15 17.75 0.09 0.00 0.01 -0.06 0.08 -0.02 0.34 1.00
9. High-tech Industry 0.36 0.48 -0.08 -0.03 -0.03 0.02 0.00 0.02 -0.09 -0.29 1.00
10. Manufacturing 0.35 0.48 0.10 0.05 0.07 -0.03 0.05 0.14 -0.00 0.19 -0.27 1.00
11. Respondent tenure 10.97 9.15 -0.02 -0.01 0.04 0.02 0.05 -0.17 -0.10 0.19 -0.08 0.02
Note: N ¼ 209. Bold correlations are significant at least at the 0.05 level.
extent to which they systematically engage in activities related to SSR capabilities. Second, we controlled for firm age,
measured as the number of years since establishment at the time of the survey e 2014. Prior literature has argued that
adaptability may be reduced as the firm grows older and some processes become “imprinted”. At the same time, older firms
may be more well-coordinated exactly because of their experience and well-established norms and processes.
Next, we controlled for respondent tenure, which allowed us to control for response differences due to experience,
perceptions of uncertainty, and familiarity. Finally, dynamic capabilities may vary systematically by industry (Eisenhardt and
Martin, 2000). To control for potential industry effects, we included two dichotomous variables. First, we coded 1 for high-
tech industries and 0 otherwise, to control for intensity of technological turbulence and change. This is consistent with recent
findings that dynamic capabilities tend to be stronger in industries characterized by higher dynamism (Barrales-Molina et al.,
2013; Li and Liu, 2014). Following Daily et al. (2005), we coded samples of firms as operating in high-tech industries when the
primary industry was computer hardware, computer software, biotechnology (and medical devices), or telecommunications.
To these, we added several firms that operated within the defense and aerospace industry and the environmental technology
industry, both of which are R&D-intensive industries in Israel. Second, we distinguished between manufacturing and service
firms with an additional dichotomous variable (Wilden and Gudergan, 2015). Descriptive statistics and correlations of the
study’s variables are presented in Table 2.
Analyses and results
Construct validity and common method bias
Convergent validity was established in three ways: reliability parameters (Cronbach’s a and composite reliability) were
adequate for all constructs as described above, all items loaded significantly on their corresponding latent variable, and
squared multiple correlation (SMC) coefficients for the items were all above the 0.20 level (Hair et al., 1998). In looking at the
average variance extracted (AVE) for our study’s scales (see Table 1), while most are above the recommended 0.50 value, some
are below it (also see Wilden et al., 2013). However, Malhotra and Dash (2011, p. 702) note that “AVE is a more conservative
measure than CR [composite reliability]. On the basis of CR alone, the researcher may conclude that the convergent validity of
the construct is adequate, even though more than 50% of the variance is due to error.”
Furthermore, we were able to obtain responses from a second executive in 36 firms in order to cross-validate the existence
of a climate for trust in the organization. Schneider et al. (2013, p. 364) noted that climate researchers typically report ICC(1), a
ratio of between-unit variance to total variance (Bliese, 2000), and as such “technically a measure of both interrater reliability
and interrater agreement.” According to Klein and Kozlowski (2000, p. 224), ICC(1) may be interpreted as “the extent to which
one rater from a group may represent all the raters within the group. The larger ICC(1), the more alike the raters are”. Thus,
ICC(1) measures reliability of individual informants (Homburg et al., 2012). The ICC(1) was 0.40 (p < 0.01), which is consistent
with prior organizational climate research (e.g., Hofmann et al., 2003, Salanova et al., 2005) and represents adequate
agreement (LeBreton and Senter, 2008), especially in light of the small sample size. We also note that the average position
tenure of respondents was 10.97 years. According to Ruppel and Harrington (2000, p. 320), “with such tenure, the climate
becomes internalized or the employee leaves the organization, suggesting that the managers in the current study have been
integrated into their organization’s climates.” The second respondents also provided responses to the competitive advantage
items, and the ICC(1) was 0.57 (p < 0.01), indicating strong agreement.
Similar to Schleimer and Pedersen (2013), we attempted to address potential common method bias concerns in several
ways (Chang et al., 2010). First, in designing the questionnaire, we separated items pertaining to the climate construct from
the dynamic capabilities and competitive advantage constructs, as a means to psychologically separate predictor from pre-
dicted variables among respondents. Second, we ensured respondents that responses will remain anonymous, as a means to
reduce social desirability (Podsakoff et al., 2003). Third, we performed Harman’s one-factor test to ensure that a single factor
does not account for the majority of the variance. Results of an exploratory factor analysis with Varimax rotation showed five
factors with Eigenvalue above 1.00. The first un-rotated (rotated) factor accounted for roughly 33% (17%) of the variance, well
below 50%.
Fourth, we conducted a series of confirmatory factor analyses (CFAs) to compare the five-factor model to alternative
measurement specifications using a chi-square difference test. Alternative model specifications fit the data significantly
worse, especially the one-factor model, indicating that the five-factor model exhibited the best fit to the data.3 During that
stage we also conducted a series of CFAs where covariance of each pair of constructs was set to 1.00 (i.e., constraining pairs of
constructs to be one and the same). These models fit the data significantly worse than the unconstrained model. These tests
also help in establishing discriminant validity, and we additionally note that, as can be seen in Table 1, the AVE for each
construct is greater than the largest shared variance between that construct and any other construct in the model (Fornell and
Larcker, 1981).
Finally, in designing our survey, we were mindful of the fact that single-respondent data may raise common method bias
concerns. Thus, similar to several recent studies (Bock et al., 2012; Cameron and Webster, 2011; Criscuolo et al., 2014), we
included five items to measure a latent marker variable, which was not expected to be related to our study’s constructs yet, at
the same time, capture biases such as common rater bias and social desirability bias (Podsakoff et al., 2012). Following several
consultations with methodology experts, we chose amiability as the latent marker variable for this study (see Table 1). Then,
based on procedures outlined in Williams et al. (2010), we investigated the extent of common method bias in our data, using
several model comparisons via chi-square difference tests. Results of these analyses are discussed in Appendix B and indicate
that common method bias is not a major concern in our study.
Model specification and hypothesis testing
To test our hypotheses, we employed maximum likelihood structural equation modeling (SEM) with the AMOS 18 soft-
ware, which allows for the simultaneous formation of latent variables and the testing of a structural model linking those
variables. Further, SEM allows an iterative fine-tuning of the pre-specified model in order to achieve better fit to the data,
which is measured using several fit indices (Hair et al., 1998). Our sample size and reflective nature of indicators rendered SEM
well-suited to test the proposed model.
In the first model, we specified the structural paths suggested by our hypotheses and earlier discussion. Specifically,
climate for trust was related to the three SSR capabilities, sensing capability influenced seizing and reconfiguration capa-
bilities, seizing influenced reconfiguration capability and competitive advantage, and reconfiguration capability had a path to
competitive advantage. Including competitive advantage in the model was instrumental for (a) validating the importance of
SSR capabilities to competitive advantage, and (b) examining whether organizational climate for trust affects competitive
advantage through its influence on the three SSR capabilities (i.e., hypothesis 4).
In addition, we created co-variances between all pairs of exogenous variables. All control variables were specified to affect
the three SSR capabilities and competitive advantage. This model fit the data well (c2 ¼ 420.80, p < 0.01, df ¼ 214, CFI ¼ 0.88,
RMSEA ¼ 0.07). The CFI is just below the lower bound of acceptable levels (i.e., 0.90 to 0.95), though this index is affected
downward by the relatively large number of indicators (19 latent variable indicators and 5 observed control variables) in our
model (Williams et al., 2010). Further, the RMSEA value is below the recommended 0.08 (Hair et al., 1998). In the first model,
we also observe that all indicators load significantly (p < 0.001) on their respective constructs.
An examination of the modification indices revealed that specifying a co-variance between error terms of two climate for
trust indicators would improve fit substantially (Dc2 ¼ 33.0, Ddf ¼ 1, p < 0.05). Such co-variance suggests that a variable, not
specified in the model, may serve as a common antecedent of the two indicators. The second model fit the data better
(c2 ¼ 387.80, p < 0.01, df ¼ 213, CFI ¼ 0.90, RMSEA ¼ 0.06), and the direction and significance of predicted relationships did not
change. Next, as a third model, we allowed for a direct path between sensing capability and competitive advantage in order to
confirm our expectation that sensing capability will serve as distal antecedent to competitive advantage; the path was not
significant nor did it improve model fit (Dc2 ¼ 0.10, Ddf ¼ 1, p > 0.10), and all other path parameter estimates remain similar.
As a fourth and final model, we made two changes. First, throughout all the models tested, the direct path between seizing
capability and competitive advantage was insignificant (p > 0.10), indicating that the direct path may be misspecified to our
data. Second, fit statistics suggested that adding a direct path between climate for trust and competitive advantage would
significantly improve model fit. This final model fit the data best (c2 ¼ 381.0, p < 0.01, df ¼ 213, CFI ¼ 0.90, RMSEA ¼ 0.06) and
significantly better than the previous models (p < 0.05), while not altering other path coefficients. This is because the direct
path between climate for trust and competitive advantage was significant (p < 0.05). We therefore retained this last, best-
fitting model in testing our hypotheses, and present this model in Figure 1.4
As can be seen in Figure 1, climate for trust had a positive and significant (p < 0.01) relationship with sensing capability, in
support of hypothesis 1. We find a similar relationship between climate for trust and seizing and reconfiguring capabilities
(p < 0.01), providing support for hypotheses 2 and 3. Furthermore, climate for trust had a significant indirect effect on seizing
3
Detailed results of these analyses are available from the authors.
4
Following the advice of an anonymous reviewer, we ran additional analyses to explore the possibility that climate for trust moderates the SSR
capabilities-competitive advantage relationships. These interactions were not statistically significant (p > 0.10), indicating that our data does not support a
moderating role of climate for trust. We thank the anonymous reviewer for this suggestion.
Sensing
Capacity
0.31** 0.35*
0.36**
0.26*
Climate for 0.13** Seizing Competitive

Trust Capacity Advantage
0.69* 0.28**
0.29**
Control Variables:
• Firm Size
Reconfiguration
• Firm Age Capacity
• High-tech Industry
• Manufacturing vs. Service
• Respondent Tenure
Figure 1. Final retained model and path coefficients

Note: Unstandardized regression weights are reported. Dashed paths illustrate the inclusion of control variables in the model. The path coefficients for each
control variable are available from the authors upon request.
c2 ¼ 381.0, p < 0.01, df ¼ 213, CFI ¼ 0.90, RMSEA ¼ 0.06.
**p < 0.01.
*p < 0.05.
(p < .01) and reconfiguration capabilities (p < 0.05), indicating that the influence of climate for trust on competitive advantage
channels through all three SSR capabilities. As expected, we also observed that sensing capability was positively and
significantly related to seizing (p < 0.01) and reconfiguration (p < 0.05) capabilities. Further, seizing capability was positively
and significantly related to reconfiguration capability (p < 0.05), which in turn was positively and significantly (p < 0.01)
related to competitive advantage.
Finally, we tested hypothesis 4 by obtaining the indirect effect of climate for trust on competitive advantage. We utilized
the bootstrapping algorithm in AMOS 18, with 2000 bootstrapped samples to ensure accuracy and stability, to generate 95%
bias-corrected confidence intervals for the standardized indirect effect (Arbuckle, 2007). The standardized indirect effect of
0.16 was significant at p < 0.01 (CI 0.05:0.32), which provides support for hypothesis 4. In sum, climate for trust had both a
significant direct effect on competitive advantage and, as predicted, an indirect effect through the three SSR capabilities.
Discussion
The main purpose of this study was to investigate how the foundational climate for trust within the organization affects its
dynamic capabilities and competitive advantage. We drew on social exchange and social information processing logic to
argue that climate for trust facilitates the type of adaptability and coordination among organization members that result in
higher SSR capabilities. In empirically testing these assertions, we found that a climate for trust contributes to competitive
advantage through its enhancement of the three SSR capabilities. However, we also found that climate for trust has a direct
effect on competitive advantage. We now turn our attention to discussing the implications of our results.
Implications for theory
First, our study is one of the first to explicitly test the SSR framework, and couple dynamic capabilities research with
insights from the organizational climate literature. We demonstrate not only that the social system operating within the firm
matters, but also how it matters. This highlights the importance of the social fabric within the organization as a foundation of
dynamic capabilities and competitive advantage. The system of social exchange within the firm shapes collective learning and
action and, therefore, requires more attention within the dynamic capabilities view.
While growing research is delving into the micro-foundations of dynamic capabilities, “the origins question has proven
hard to answer. For any answer to this question requires a discussion of… the main constituents driving firm heterogeneity, as
well as their aggregation to explain differences in firm-level outcomes” (Foss et al., 2012, p. 174). To begin answering this
question, an important addition to the micro-foundations project may come from examining how employee shared
perceptions of the social context serve as the foundations of dynamic capabilities. Our study contributes to this effort, but
additional studies that explicitly examine other social contextual variables in relation to dynamic capabilities would likely
move the literature forward in meaningful ways.
Second, Schreyo €gg and Kliesch-Eberl (2007) have argued that the way to overcome the rigidities associated with the
systematic nature of organizational capabilities is to introduce a monitoring function that facilitates reflection about the
current way of doing things. A climate for trust contributes to such a monitoring function by encouraging information-sharing
and change-oriented activities throughout the organization, which may result in the discovery of new opportunities or the
reconsideration of routines as a means to adapt to new conditions (Salvato, 2009; Schreyo €gg and Sydow, 2010). Subsequently,
with a climate for trust, actual reconfiguration of the resource base with minimum cost and friction is enabled by cooperative
interactions and adaptability among employees. Similarly, because organizations tend to naturally drift toward efficiency,
mechanisms are needed that allow them to “unbalance” by allocating more effort to exploration (Eisenhardt et al., 2010). Our
results suggest that a climate for trust is one such mechanism that enhances activities entailing exploratory efforts, but there
could be many more. Uncovering such antecedents to dynamic capabilities is likely a fruitful avenue for future research.
Third, the literature is now beginning to recognize that top managers’ social skills may matter in shaping dynamic ca-
pabilities (Helfat and Peteraf, 2015). Whether through formal or informal mechanisms, leaders may “have some impact on
building a productive organizational climate through the emphasis of particular sets of organizational values” (Marcoulides
and Heck, 1993, p. 212), and these climates may then enhance their firm’s dynamic capabilities and competitive advantage.
For example, DeCelles et al. (2013) found that a climate of cynicism toward change negatively affected the behaviors and
attitudes of employees towards the organization. They also found that transformational leadership of the organization is a
way to mitigate such an unwanted climate, indicating that leaders can directly shape climate perceptions. Our study implies
that the dynamic capabilities view may benefit from an investigation of how leaders can strengthen their organization’s
dynamic capabilities by facilitating the emergence of social contextual mechanisms, such as a climate for trust.
Fourth, our study shows that the framework and instruments developed by Teece (2007) and Wilden et al. (2013) are valid
in several ways, including their interrelations and link to competitive advantage. However, it is also evident that these scales
may need to be further refined to increase methodological rigor (e.g., improve convergent validity). Furthermore, results
showed that, contrary to our expectations, seizing capability affected competitive advantage only indirectly via reconfigu-
ration capability. Possibly, the evaluation or even decision to mobilize resources to capture opportunities or eliminate threats
in itself may not necessarily translate into competitive advantage. For instance, as competitive conditions change, opportu-
nities may prove less valuable than originally evaluated. This supports a more granular understanding of the individual
performance effects of dynamic capabilities dimensions, and suggests a potential refinement of the SSR framework’s link to
competitive advantage, both of which need to be examined in future studies.
Finally, we found that climate for trust had both a direct and indirect relationship with competitive advantage. The indirect
effect begins to explain the key mechanisms by which foundational climates may be translated into organizational success
through dynamic capabilities. The direct effect, however, suggests that dynamic capabilities only partially explain the rela-
tionship between climate for trust and competitive advantage. Stepping outside the SSR framework, our findings raise the
question of whether there are other change aspects translating climate for trust into competitive advantage. For instance, Baer
and Frese (2003) found that the specific climate for initiative had a positive impact on firm performance. It may be that
climate for trust, as a foundational climate, facilitates the more specific climates “for something”, like initiative (Schneider
et al., 2000), thus leading to competitive advantage. Similarly, Danneels (2008) found that marketing and R&D dynamic
capabilities are affected by a climate for constructive conflict and tolerance for failure, both of which are associated with trust
(Baer and Frese, 2003). Hence, our findings indicate that there are fruitful areas of research in examining the interrelation-
ships of organizational climates and their impact on various dynamic capabilities and competitive advantage.
Managerial implications
Our study provides useful insights to managers looking to enhance their organization’s competitive advantage. Specif-
ically, managers could establish formal control and incentive mechanisms within the organization to facilitate a trusting work
environment. For instance, Collins and Smith (2006) show that a commitment-based human resource management system is
positively related to a social climate characterized by trust within the organization. Similarly, since managers’ informal social
cues serve a key role in shaping the social climate of their units, organizations could provide training to their managers as a
means to develop the social and leadership skills that create a climate for trust among subordinates. These actions may
enhance the organization’s ability to change effectively and efficiently, as well as facilitate the organization’s competitive
advantage. Furthermore, our results suggest that managers could look into the social environment of their organization in
order to gain further understanding of the drivers behind the organization’s capability strengths and weaknesses relative to
competitors. The social context, particularly the foundational climate for trust, is consequential to key organizational capa-
bilities and this may not always be immediately intuitive to all managers.
Limitations and future research
Our study is not without limitations that can hopefully be addressed in future research. First, while we drew on theory to
specify the theoretical model and causal directions, our data are cross-sectional, which warrants that any inferences regarding
causality be made with caution. Relatedly, we were also not able to comment on the longevity of competitive advantage
stemming from dynamic capabilities. Our assertions refer to the cross-sectional impact on the extent of advantage. Thus, it
would be interesting to see how SSR capabilities affect the sustainability of competitive advantage over time, and how
organizational climates affect dynamic capabilities over time.
Second, our sample is drawn from a single country d Israel. Given that national context matters for not only the capa-
bilities that firms develop, but also the effectiveness of deployed capabilities (Peng et al., 2009), a natural extension of our
study is to test this model in other national contexts. This may prove useful also to further refine measurement scales for
dynamic capabilities (e.g., Danneels, 2015) and because concepts such as trust vary in their nature and implications across
national contexts.
Third, although we find evidence in support of the role of climate for trust as an enabler of dynamic capabilities, prior
research suggests trust may have a dark side (e.g., Gargiulo and Ertug, 2006; Molina-Morales et al., 2011). In some cases, very
high levels of trust may diminish information gathering and lead to over-embeddedness. Hence, it would be theoretically
valuable to extend our findings by uncovering the boundary conditions of the enabling role of climate for trust. This may
include the examination of latent environmental and organizational moderators (e.g., Wilden and Gudergan, 2015) that
potentially alter the value of climate for trust for dynamic capabilities and competitive advantage.
Finally, while our study demonstrates a significant effect of reconfiguration capability on competitive advantage, it is
possible that this effect is indirect, mediated by the organizational resource base (Arend and Bromiley, 2009; Eisenhardt and
Martin, 2000). Future research aimed at further examining and refining the causal chain between dynamic capabilities and
competitive advantage is warranted. Our study makes an important step in that direction by empirically testing the SSR
framework and its relation to competitive advantage.
Conclusion
In sum, we put forth theory and evidence regarding the role social climates within organizations play in facilitating dy-
namic capabilities. In addition, we demonstrate the nuanced effects of SSR capabilities and climate for trust on competitive
advantage, and the interrelationships among the three SSR capabilities. Taken together, our study advances understanding of
the antecedents of dynamic capabilities by highlighting the importance of organizational climate for trust as social under-
pinning of dynamic capabilities and competitive advantage. We hope that this study will encourage researchers to pursue
further investigations into the social foundations of dynamic capabilities and their role in organizational success.
Acknowledgements
We thank LRP Associate Editor, Charles-Clemens Rüling, and two anonymous reviewers for their valuable feedback that has
helped in shaping the paper. Also, for their valuable comments on earlier versions of this manuscript, we would like to thank Aya
Chacar, William (Bill) Newburry, Samantha Paustian-Underhaul, Hock-Peng Sin, Mark Mallon, Marc Weinstein, and the partic-
ipants at the FIU Research Seminar Series. An earlier version of this manuscript was presented at the 2015 Southern Management
Association Annual Meeting. We thank the three anonymous conference reviewers for their constructive feedback.
Appendix A. Descriptive information of sample firms
Table A.1 Descriptive characteristics of the sample
Characteristic % of sample
Industry
Agriculture/environmental 6
Construction and real-estate 8
Consulting 1
Consumer goods 3
Defense and aerospace 4
Diamonds 1
Electronics 13
Energy 1
Food 6
Health-care 1
Industrial materials 10
IT/computers/software 12
Machinery and heavy equipment 4
Media/print 2
Medical equipment 6
Mining/metals/steel 5
Motor industry 1
Pharma and biotech 4
Services 2
(continued on next page)
(continued )
Characteristic % of sample
Telecom 4
Textiles 3
Tourism 1
Transportation 1
Firm size (employees)
<100 70
100e250 17
>250 13
Firm age (years)
<5 2
5e10 9
10e20 17
>20 72
Informant position tenure (years)
<1 1
1e5 30
5e10 21
>10 48
Informant position
CEO 35
CFO 37
VP of Marketing 7
VP of Human Resources 5
Other VP or executive 16
Appendix B. Tests for common method bias
Due to missing marker variable data for seven observations, the sample size for this procedure was 204. We first conducted
a CFA in order to obtain estimates of marker variable indicator loadings and error variance. We then specified those estimates
in the baseline model, in which the latent marker variable was not related in any way to other latent constructs or substantive
indicators. Next, we compared the baseline model to a constrained model, in which the latent marker variable was allowed to
influence all substantive indicators equally. This model fit the data significantly better, indicating that common method bias
may be present (see table below). Finally, we examined whether an unconstrained model, wherein the latent marker variable
was allowed to influence substantive indicators differently, fit the data even better. Results showed that the constrained
model exhibited superior fit, indicating that common method bias is largely equal across indicators.
In addition, Williams et al.’s (2010) approach allows for an estimation of the amount of variance accounted for by the latent
market variable, by squaring and summing all substantive indicator standardized loadings on the latent marker variable.
Results revealed that the overall variance in substantive indicators of the five focal constructs accounted for by the latent
marker variable was two percent; the average and median influence of the latent marker variable on substantive indicator
variance was roughly two percent as well. Taken together, these results establish that the impact of common method bias is
marginal and equal across items.
Table B.1 Common method variance test with marker variable
Model Chi-square (df) D Chi-square (Ddf)
Baseline model 509.00 (251) -

Constrained model 490.30 (250) 18.70 (1)*
Unconstrained model 476.60 (232) 13.40 (18)
Note: *p < 0.05.
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Biographies
Stav Fainshmidt is an Assistant Professor at the Florida International University (FIU) College of Business. He received his PhD from Old Dominion University
with a focus on strategic management and interactional business. His research interests include organizational capabilities, institutions and governance, and
methods in organizational research.
M. Lance Frazier is an Associate Professor in the Heider College of Business at Creighton University. He received his PhD from Oklahoma State University with
a focus on organizational behavior and research methods. Dr. Frazier’s research interests include proactive behaviors at work, organizational justice, and the
role of trust in fostering important work outcomes.

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Long Range Planning 50 (2017) 550e566

Contents lists available at ScienceDirect

Long Range Planning

What Facilitates Dynamic Capabilities? The Role of

Dynamic capabilities of the ﬁrm

Drivers of SSR capabilities

Organizational climate as social context

Climate for trust and SSR capabilities

Climate for trust and sensing capability

Climate for trust and seizing capability

Climate for trust and reconﬁguring capability

Climate for trust, dynamic capabilities, and competitive advantage

Sample and procedure

Construct Source Items Cronbach’s CR AVE Highest

Analyses and results

Construct validity and common method bias

Model speciﬁcation and hypothesis testing

Climate for 0.13** Seizing Competitive

Figure 1. Final retained model and path coefﬁcients

Implications for theory

Limitations and future research

Appendix A. Descriptive information of sample ﬁrms

Table A.1 Descriptive characteristics of the sample

Appendix B. Tests for common method bias

Table B.1 Common method variance test with marker variable

Model Chi-square (df) D Chi-square (Ddf)

Baseline model 509.00 (251) -

Note: *p < 0.05.

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