Essays on the nature and dynamics of higher-order organizational capabilities

Today’s business environments have become fast-moving, involving frequent, rapid and unpredictable change. As such, firms are struggling to (find new ways to) create and sustain competitive advantage. Scholars in organization science, and strategic management in particular, have shifted focus towards competing on higher-order (i.e. meta-)organizational capabilities in fast-moving business environments; organizational capabilities that may define a firm strategically as being key drivers of long-term business performance. However, the main question that needs to be answered refers to what the key dimensions of such higher-order organizational capabilities in dynamic business environments are. This doctoral dissertation therefore examines the following central research question: What are the key dimensions of higher-order organizational capabilities in addressing situations of changing market and competitive conditions? This dissertation builds upon the notions of dynamic capability and ambidexterity. The notion of dynamic capability explains how organizations may develop competitive advantage in fast-moving business environments, by focusing on the dynamic processes of assembling, deploying and integrating a firm’s resource base. Dynamic capabilities stress the importance of the history of a firm’s current capabilities, and the importance of revising and reconfiguring these in the future. As such, firms are able to address changing environments and/or create market change. However, in situations of changing market and competitive conditions, firms need to demonstrate the ability to timely response to new circumstances, along with the ability to address existing environments. In this respect, scholars introduced the notion of ambidexterity, which refers to performing different and often competing challenges. Here, competitive advantage may result from being efficient in managing today’s business demands, while at the same time being effective in adapting to changing business environments and/or in creating market change. As such, firms need a focus on both exploitation and exploration; that is, on their current activities in existing domains along with developing new activities in non-existing domains. The current literature comprises a variety of conceptualizations and interpretations of dynamic capability and ambidexterity, providing a significant challenge for both scholars and practitioners to understand and develop these meta-organizational capabilities. In order to assess the collective understanding of both concepts, Chapter 2 introduces a systematic literature review approach. Such an approach involves a comprehensive search of all potentially relevant papers and books of dynamic capability and ambidexterity, and the use of explicit, reproducible criteria in the selection of papers and books for review. Drawing on systematic literature reviews, the foundations, antecedents and consequences of dynamic capability and ambidexterity are explored in terms of definitions, operationalizations and measurements of their key dimensions. As a result, a (re-)definition of dynamic capability and ambidexterity is proposed. These definitions point at ways in which dynamic capability and ambidexterity can be operationalized and measured more effectively in future research. As such, Chapter 2 develops a definition and operationalization of dynamic capability and ambidexterity in terms of their key dimensions. Chapter 2 therefore contributes to the development of a theoretical understanding of the key dimensions of dynamic capability and ambidexterity, providing a starting point for future theoretical and empirical studies that advance our collective understanding of dynamic capability and ambidexterity. The insights from the systematic literature reviews provide a theoretical basis for the empirical studies in this dissertation. The empirical studies in Chapter 3 and 4 extend our empirical understanding of the dynamics entailed in the way ambidexterity is performed in service firms. Empirically studying ambidexterity in the service industries contributes to previous studies that have mainly been conducted in manufacturing firms, whereas relatively less attention has been paid to the challenges of exploitation versus exploration in service firms. Moreover, ambidexterity is particularly challenging for service firms, because new service development requires integrating the needs of new service operations and processes with existing business activities. As such, this dissertation extends and builds (new) theory in the field of dynamic capability, and ambidexterity in particular, which lead to main findings and implications that are of general scientific value for scholars and provide valuable insights for practitioners (in service firms). The empirical study in Chapter 3 studies ambidexterity from an organization design perspective by examining the relationship between decentralization and ambidexterity. As such, this study provides an in-depth understanding of the impact of decentralization on the dynamics entailed in the way ambidexterity is organized, balanced and connected in large service firms, incorporating the role of timing and interdependencies. Recently, scholars have suggested that a decentralized structure facilitates ambidexterity. However, comparative case studies of two service innovations in a large decentralized retail bank in the Netherlands paint a more complex picture. First, a literature review implies that decentralization may activate highly different generative mechanisms. Subsequently, the case study findings show that the activation of these generative mechanisms depends on the actual use of the decentralized structure. Moreover, these generative mechanisms and their outcomes gain and lose dominance in different phases of the innovation process. In particular, the effectiveness of the decentralized structure depend on the interdependence of exploitation and exploration activities. A decentralized structure appears to be of limited help for ambidexterity if exploration involves complex service innovation that needs to be integrated into the exploitative core of the organization. In other words, a decentralized structure does not support ambidexterity when exploitation and exploration activities are strongly interdependent. Overall, the main contribution of chapter 3 is to elaborate and extend existing theory. In this respect, Chapter 3 contributes to the literature by combining the literature on ambidexterity, organizational design and service innovation. The empirical study in Chapter 4 studies ambidexterity from a managerial perspective by examining the relationship between an organization’s founding conditions and the degree of ambidexterity in organizational practices in small-to-medium sized service firms. As such, this study extends our understanding of the dynamics entailed in the way competing priorities are performed, especially when these priorities demand both continuity and renewal. More specifically, this study explores the way founding conditions impact organizational practices, and in particular the capability to change these practices. The findings of comparative case studies of two practices in three management consulting SME’s in the USA, the Netherlands and the UK reveal how founding conditions affect the way competing demands of continuity and renewal are addressed. The case study findings primarily suggest the importance of founders’ blueprints, embedded in their employment models. These blueprints are difficult to alter, and as such mark the firm’s future path by impacting the level of ambidexterity in practices over an extended period of time. Overall, the main contribution of Chapter 4 is to build new theory. In this respect, Chapter 4 contributes to the literature by combining the literature on ambidexterity, founding conditions and practice-based research. Finally, Chapter 5 summarizes the main findings and (practical) implications of the studies described in previous chapters of this dissertation. Subsequently, a general conclusion regarding the central research question is given. In this respect, by drawing on the systematic literature reviews and empirical studies, this chapter describes a taxonomy of key dimensions of ambidexterity as a higher-order organizational capability. As such, this taxonomy integrates the previous chapters, and serves to answer the central research question in this dissertation. Finally, this chapter describes the main limitations of this dissertation and makes suggestions for future research.