Dynamic Managerial Capabilities and Competitive Advantage

173 Pages·2014·3.78 MB·English

Dynamic Managerial Capabilities and Competitive Advantage:
An Empirical Analysis of Managers from the Finance and Insurance
and Real Estate Sectors

Author and qualifications:
Bruce W. Bellner
Bachelor of Business Administration
Master of Business Administration
Master of Science

Qualification for which the thesis is submitted:
Doctor of Business Administration

The name of the institution to which the thesis is submitted:
Edinburgh Business School, Heriot-Watt University

The month and year of submission:
November 2013

Copyright statement:
This copy of the thesis has been supplied on condition that anyone who consults it is understood
to recognize that the copyright rests with its author and that no quotation from the thesis and no
information derived from it may be published without the prior written consent of the author
and of the university (as may be appropriate).
©2013
Bruce W. Bellner
All Rights Reserved
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Abstract
This thesis empirically investigated dynamic managerial capabilities (DMCs), which are
the capacities that managers use to create, extend, and modify resources. The research
objectives involved identifying, classifying, and assessing DMCs in generating
competitive advantage using resource-based theory (RBT). The overall research aim
was to build theory in a critical yet underdeveloped area of the literature. A multi-case
study using a phenomenological approach was conducted with managers from five
small-to-medium sized enterprises from the finance and insurance and real estate
sectors. The managers were interviewed, and described episodes when they
reconfigured resources during periods of rapid change (such as the recent financial
crisis and recession) in order to compete. A survey questionnaire was also used in which
respondents ranked DMCs, and discussed the joint uses of them, including which
capabilities were used in developing and operating others. The results of the research
showed that managers used specific transformational DMCs in periods of rapid change
in order to generate advantage. The DMCs are learning-based (LBDMC) and
innovation-based capabilities (IBDMC) and involve participative leadership (PL). They
are mutually interdependent and reinforcing, impact on ordinary capabilities, and are
evolutionarily fit. They exhibited commonalities, yet are considered idiosyncratic in
detail. The results are relevant to the field of strategic management in terms of theory
development and practical applicability. The academic contribution exploits a gap in the
extant literature, and the research shows how DMCs can be developed, used, and
maintained in practice.

Keywords: dynamic capabilities: dynamic managerial capabilities: asset orchestration:
resource-based view: strategic management: competitive advantage
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Glossary of Key Terms and Concepts
“Asset orchestration (AO) refers to managerial search, selection, and
configuration/coordination of resources and capabilities” (Helfat et al., 2007, p. 121).
“Capability can be operational or dynamic, and refers to the capacity to perform a
particular task, function, or activity” (Helfat et al., 2007, p. 121, emphasis original).
“Capabilities [are] a subset of a firm’s resources, defined as tangible and intangible
assets, that enable the firm to take full advantage of other resources it controls” (Barney
& Hesterly, 2012, p. 347).
“Capacity refers to the ability to perform the task, function, or activity in at least a
minimally acceptable manner” (Helfat et al., 2007, p. 121).
“Competitive advantage holds when a resource or capability (or set of resources and
capabilities) creates relatively more value than do comparable resources and capabilities
of competing organizations” (Helfat et al., 2007, p. 121, emphasis original).
Competitive intangibles are capabilities a manager uses individually or collectively.
They include such things as learning and innovation-based capabilities as well as
leadership style, such as participative approaches.
“Dynamic capability (DC) is the capacity of an organization to purposefully create,
extend, or modify its resource base, and consists of a patterned and somewhat practiced
activity” (Helfat et al., 2007, p. 121, emphasis original).
“For analytical purposes, dynamic capabilities can be disaggregated into the capacity
(1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to
maintain competitiveness through enhancing, combining, protecting, and when
necessary, reconfiguring the business enterprise’s intangible and tangible assets”
(Teece, 2007, p. 4).
Dynamic innovation strategy is the firm’s theory about how to gain competitive
advantage in periods of significant change by managing a culture of innovation. It
involves developing the capacity to create, extend, and/or modify resources using
learning and innovation-based DMCs and participative leadership as a part of a holistic
framework.
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“Dynamic managerial capability (DMC) refers to the capacity of managers to create,
extend, or modify the resource base of an organization” (Helfat et al., 2007, p. 121,
emphasis original).
Entrepreneur initiates and responds to change in the internal and external
environment, and looks to exploit opportunities for potential wealth creation and
capture. The entrepreneur converts knowledge into innovation, and harmonizes
resources and capabilities in so doing.
Entrepreneurial management involves development and use of learning and
innovation-based capabilities and participative leadership.
“Evolutionary fitness (EF) refers to how well a dynamic capability enables an
organization to make a living by creating, extending, or modifying its resource base.
Influences on evolutionary fitness include technical fitness, competition, and market
demand” (Helfat et al., 2007, p. 121, emphasis original).
Finance and insurance and real estate sectors refers to accounting, banking,
insurance and investment firms (finance and insurance sector), and real estate firms, as
in the NAICS (North American Industrial Classification System), formerly the SIC
(Standard Industrial Classification) system.
Innovation is to make changes to something established (e.g., new methods, ideas,
products, and/or processes).
Innovation-based dynamic managerial capability (IBDMC) refers to the capacity of
managers to make changes to something established (e.g., by introducing new ideas,
methods, products, and/or services) in order to create, extend, or modify the resource
base of an organization.
It involves the process of translating ideas or inventions into goods/services that create
value for which customers will pay. The idea of entrepreneurial management is an
important aspect of this capability.
Learning-based dynamic managerial capability (LBDMC) refers to the capacity of
managers to use the acquisition of knowledge (tacit or intuitive and explicit knowledge)
or skills through experience, practice, or study, or by being taught, in order to create,
extend, or modify the resource base of an organization.
It includes managerial know-how, and goes beyond problem solving, and is used to
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transform the system, as it exists. It involves lifelong learning and fostering learning in
the organization.
Making strategy work (MSW) “is a process for connecting the high-level strategic
plan to the day-to-day activities critical to its delivery and identifying the changes to be
made in order to deliver the strategic objectives” (Roberts & MacLennan, 2003, p. xi).
“Operational capability is any type of capability that an organization uses in an effort
to earn a living in the present” (Helfat et al., 2007, p. 122, emphasis original).
Participative leadership (PL) is when the manager allows employees to be engaged in
the strategic process of the firm and to be involved in the decision-making it entails. It is
more of a democratic, as opposed to autocratic, approach to leadership (e.g., employees
are a valued part of the team).
The notion that employees can participate actively in the managerial process, and in so
doing help realize personal and firm goals, is a critical component of this capability.
DMC Portfolios involve using two or more DMCs together in order to create, extend,
or modify resources. The idea of dynamic portfolios is analogous to the language of
finance in that it invokes the idea of a range of investments in assets (e.g., managerial
capabilities referred to as competitive intangibles) used toward competitive advantage.
“Relational capability (RC) is a type of dynamic capability that refers to the capacity
of the firm to purposefully create, modify or extend the firm’s resource base,
augmented to include the resources of partners” (Helfat et al., 2007, p. 122, emphasis
original).
“Resource in the broadest sense is anything upon which the organization can draw in an
effort to accomplish its aims. In a narrower sense, a resource is a tangible, intangible, or
human asset upon which an organization can draw” (Helfat et al., 2007, p. 122).
“Resource base of an organization includes tangible, intangible, and human assets (or
resources), as well as capabilities that the organization owns, controls, or has access to
on a preferential basis” (Helfat et al., 2007, p. 122).
“[R]esource-based view (RBV) [is] a model of firm performance that focuses on the
resources and capabilities controlled by a firm as sources of competitive advantage”
(Barney & Hesterly, 2012, p. 352).
Resource heterogeneity is when some managers and firms are better at doing
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something than another.
Resource immobility is when resources (and capabilities) controlled by a firm (or its
manager) may not spread to other firms.
Resource-based theory (RBT) uses the literature of the resource-based view to inform
how internal resources and capabilities are critical, such as in terms of generating
competitive advantage.
Small-to-medium sized enterprise (SME). There are a myriad of metrics used to
determine whether a firm is an SME. For the purposes of this research, an SME is 250
employees or less (adopting the European Union (EU) standard).
“Strategy is the direction and scope of an organization over the long term, which
achieves advantage in a changing environment through its configuration of resources
and competences with the aim of fulfilling stakeholder expectations” (Johnson et al.,
2008, p. 857, emphasis original).
Strategic management involves realizing strategies (deliberate or emergent) through
planning, organizing, leading, and controlling.
Structure-conduct-performance model (SCP) is the theory that the industry structure
(S), determines the firm’s conduct (C), which determines performance (P).
“Sustainable advantage from resources and capabilities is a competitive advantage that
persists in the face of competitive efforts to duplicate the value created by a resource or
capability (or set of resources or capabilities)” (Helfat et al., 2007, p. 122, emphasis
original).
“Technical fitness (TF) denotes how effectively a capability performs its intended
function (its quality) when normalized (divided by) by its cost” (Helfat et al., 2007, p.
122, emphasis original).
Transformational capabilities are those that impact on ordinary capabilities (i.e.,
LBDMC, IBDMC, and PL).
“VRIO framework [consists of] four questions that must be asked about a resource or
capability to determine its competitive potential: the questions of value, rarity,
imitability and organization” (Barney & Hesterly, 2012, p. 354).
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Dedication
This work is dedicated to: my parents, Jerry and Elsie Bellner, who always taught me
that I can do anything I put my mind to; my wife and children, Joan, Eric, and Megan
Bellner, who are always there with love for me and each other; my grandparents, Bill
and Edna Hoen, who showed me the importance of putting my best effort into all that I
do in the spirit of caring for others; my uncle, Maurice Hogan, and my aunt, Donna
Marie Flory, who each fostered a love for teaching and lifelong learning. Thank you all
for providing a wonderful source of inspiration.
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Acknowledgements
I would like to acknowledge my mentors, Professor Bill Wallace and Professor Andrew
MacLennan, at Edinburgh Business School, Heriot-Watt University, along with my
supervisor, Donald MacLean, Professorial Research Fellow, University of Glasgow,
Adam Smith, School of Business. Thank you for your help and guidance. Thank you
also to Tiffany R. Bussey, Director at the Morehouse College Entrepreneurship Center,
and to my students, Austin M. Miller, and Wenbo Chen, undergraduates in Economics
at The Ohio State University, and Thomas Thulesen, then a visiting scholar from
Copenhagen Business School, now pursuing a Master in Management degree at London
Business School. Thank you all for your useful comments and valued advice. I would
also like to thank Donna Wenzel for proofreading the literature review chapters and the
final draft of the thesis. To the students in the classes I taught at The Ohio State
University and Qingdao University—thank you all for teaching me so much!
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ACADEMIC REGISTRY
Research Thesis Submission

Name: Bruce W. Bellner
School/PGI: Edinburgh Business School
Version: (i.e. First, First Degree Sought DBA (Strategic Focus)
Resubmission, Final) (Award and
Subject area)

Declaration

In accordance with the appropriate regulations I hereby submit my thesis and I declare that:

1) the thesis embodies the results of my own work and has been composed by myself
2) where appropriate, I have made acknowledgement of the work of others and have made
reference to work carried out in collaboration with other persons
3) the thesis is the correct version of the thesis for submission and is the same version as
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should be made available for loan or photocopying and be available via the Institutional
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