Synergies of Firms' Innovation Dynamic capabilities and Information Technology

248 Pages·2014·7.66 MB·English

Synergies of Firms' Innovation
Dynamic capabilities and
Information Technology
A Study of Saudi Firms’ Innovation Performance and Practices

A thesis submitted for the degree of Doctor of Philosophy

By
Abdulrhman Albesher

School of Engineering and Design
Brunel University
May 2014

Investigating Determinants and Perceived Consequences
of Auditory Identity Management:
A Corporate Perspective Among UK Companies

A thesis submitted for the degree of Doctor of Philosophy

by

Roland H. Bartholmé

Brunel University
Brunel Business School
December 2011
Abstract
The ability of firms to innovate has become a cornerstone in the economy of many
developed and developing countries. The performance of firms is not exclusively linked to
their internal capability. Other external factors, such as technology, globalisation of the
market, knowledge, and evolving approaches to value offering, force them to constantly
change their approaches to wealth creation. Innovation is vital for firms’ competitive
advantage. Hence, a firm with higher innovation prosperity compared to its rivals has a
crucial advantage that enables it to compete in local and global markets. However,
innovation is a complex phenomenon, and a holistic view is required for a deep
understanding of the factors that influence firms’ innovation performance. Day after day,
markets are becoming more dynamic, increasing the necessity to understand how such
momentum affects innovation performance. With a focus on how they develop strategic
routines that enhance their assessment of opportunities and resource-configuration
capabilities, firms may better align their products and services with market demands.
Using state-of-the-art dynamic-capability theory, this research highlights the routines of
firms that influence their abilities to acquire and multiply knowledge and technology
consistent with market status, leading to more novel and successful innovative products
and processes as well as better economic advantage. This research aims to provide a
framework that comprises factors that may influence Saudi firms’ innovation performance.
Furthermore, the research aim attempts to understand the impact of information technology
on firms’ innovation performance. The research is based on survey data from 203 Saudi
firms registered at the Riyadh Chamber of Commerce and Industry. The empirical results
suggest that firms may enhance their ability to acquire, assimilate, transform, and exploit
knowledge by increasing their breadth of knowledge sources and by internationalizing
their searching activities for knowledge and skills. Moreover, both explorative and
exploitative innovation strategies, although paradoxes, are significant to increasing firms’
overall innovative performance. Mutually, information technology (IT) plays a critical role
in complementing firms’ dynamic capabilities through better provision of IT infrastructure,
while IT effectiveness and IT flexibility are vital to increasing firms’ abilities to maintain
both long-term and short-term competitiveness.

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Table of Contents
Abstract ........................................................................................................................................... i
Table of Contents........................................................................................................................... ii
Acknowledgement ..........................................................................................................................v
Dedication .......................................................................................................................................v
Publications and Conferences .........................................................................................................v
Abbreviations................................................................................................................................ vi
Chapter 1: Introduction ...................................................................................................................1
1.1 Background of The Study .........................................................................................................1
1.2 Motivations for the Research ....................................................................................................3
1.3 Aims, Objectives, and Research Questions ..............................................................................5
1.4 The Context of This Study ........................................................................................................6
1.5 Significance of the Research ....................................................................................................7
1.6 Thesis Outline ...........................................................................................................................8
Chapter 2: Literature Review ........................................................................................................10
2.1 Introduction ............................................................................................................................10
2.2 Innovation Theories and a Review of the Concept .................................................................13
2.2.1 Definitions of Innovation ................................................................................................13
2.2.2 Models of Innovation ......................................................................................................14
2.2.3 Systems of Innovation .....................................................................................................20
2.3 Firms’ Dynamic Capabilities ..................................................................................................25
2.3.1 Firms’ Recognition Capacity of External Knowledge ....................................................30
2.3.2 Firms’ Absorptive Capacity ............................................................................................37
2.3.3 Firms’ Ambidextrous Capacity .......................................................................................44
2.4 The Role of IT in Firms’ Dynamic Capabilities .....................................................................52
2.4.1 The Role of IT in Recognising External Knowledge ......................................................52
2.4.2 The Role of IT in Absorptive Capacity ...........................................................................54
2.4.3 The Role of IT in Ambidextrous Capacity ......................................................................56
2.5 Conclusion ..............................................................................................................................60
Chapter 3: Conceptual Model and Hypotheses Development ....................................................62
3.1 The Firms’ Innovation Dynamic Capabilities ........................................................................63
3.1.1 Firms’ Recognition Capacity of External Knowledge ....................................................63
3.1.2 Firms’ Absorptive Capacity ............................................................................................65
3.1.3 Firms’ Ambidextrous Capacity .......................................................................................67
3.2 The Role of IT in Firms’ Innovation Dynamic Capabilities ...................................................70
3.2.1 The Role of IT Sensing Capability ..................................................................................71
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3.2.2 The Role of IT Infrastructure ..........................................................................................72
3.2.3 The Role of IT Effectiveness...........................................................................................74
3.2.4 The Role of IT Flexibility ...............................................................................................74
3.3 Control Variables of This Research ........................................................................................76
3.4 Conclusion ..............................................................................................................................77
Chapter 4: Methodology .................................................................................................................78
4.1 Research Approach Paradigms ...............................................................................................78
4.2 Qualitative, Quantitative, and Mixed Methods .......................................................................80
4.2.1 Qualitative vs. Quantitative .............................................................................................80
4.2.2 The Mixed Methods Approach........................................................................................81
4.3 Research Design .....................................................................................................................82
4.3.1 Research Plan ..................................................................................................................83
4.3.2 Ethical Consideration ......................................................................................................84
4.3.3 Translation .......................................................................................................................85
4.4 Preliminary Research and Questionnaire Development .........................................................85
4.4.1 Questionnaire Development ............................................................................................85
4.4.2 Operationalisation of The Research Model .....................................................................86
4.4.3 Pilot Study .......................................................................................................................90
4.5 Primary Quantitative Research ...............................................................................................91
4.5.1 Research Data and Response Rate ..................................................................................91
4.5.2 Test of Missing Values ....................................................................................................94
4.5.3 Test of Outliers ................................................................................................................98
4.6 Conclusion ..............................................................................................................................99
Chapter 5: Empirical Study .........................................................................................................100
5.1 Reliability Test .....................................................................................................................101
5.2 Exploratory Factor Analysis (EFA) ......................................................................................106
5.2.1 EFA for the Measurements of Innovation Dynamic Capabilities .................................107
5.2.2 EFA for the Measurements of IT Capabilities ..............................................................110
5.2.3 EFA for the Measurements of the Entire Research Model ............................................112
5.3 Regression Assumptions .......................................................................................................115
5.3.1 Normality ......................................................................................................................115
5.3.2 Homoscedasticity ..........................................................................................................117
5.3.3 Multicollinearity ............................................................................................................118
5.4 Saudi Firms’ Innovation Characteristics ..............................................................................120
5.4.1 The Effect of Firms’ Size on Innovation Dynamic Capabilities ...................................123
5.4.2 Characteristics of High- and Low-Innovation Performance Saudi Firms .....................136
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5.4.3 Comments by Respondents ...........................................................................................141
5.5 T-test and Analysis of Variance (ANOVA) .........................................................................142
5.5.1 Influence of Firms’ Size on R&D Expenditures ...........................................................144
5.5.2 Influence of Firms’ Size and Internationalization Orientation on IT Capabilities ........146
5.6 Research Model Regression and Hypotheses Testing ..........................................................150
5.6.1 Regression of Firms’ Recognition Capacity of External Knowledge ...........................151
5.6.2 Regression of Firms’ Absorptive Capacity ...................................................................154
5.6.3 Regression of Firms’ Ambidextrous Capacity ..............................................................156
5.6.4 Regression of Firms’ Innovation Performance..............................................................158
5.6.5 Revised Research Model ...............................................................................................163
5.7 Validation of the Revised Research Model ..........................................................................165
5.7.1 The Case of Satellite Technology Transfer ...................................................................166
5.7.2 The Case of Gaming Technology Transfer ...................................................................167
5.7.3 Other Interviews ............................................................................................................169
5.8 Conclusion ............................................................................................................................171
Chapter 6: Discussion ...................................................................................................................173
6.1 Saudi Firms R&D Performance ............................................................................................173
6.2 Firms’ Practices for Recognising External Knowledge ........................................................174
6.3 Knowledge Absorption and Innovation Strategy..................................................................176
6.4 The Impact of IT Capabilities on Firms Innovation Practices ..............................................178
6.5 Conclusion ............................................................................................................................181
Chapter 7: Conclusion ..................................................................................................................182
7.1 Summary of Research Findings ............................................................................................182
7.2 Meeting the Research Questions and Objectives ..................................................................185
7.3 Significance of the Research Findings .................................................................................188
7.4 Uniqueness and Novelty of This Research ...........................................................................189
7.5 Theoretical Contributions .....................................................................................................190
7.6 Practical Implications ...........................................................................................................192
7.7 Research Limitations ............................................................................................................194
7.8 Recommendations for Future Research ................................................................................195
7.9 Conclusion ............................................................................................................................196
Bibliography ..................................................................................................................................198
Appendix A: Letter of Approval from The Riyadh Chamber of Commerce and Industry ...223
Appendix B: Survey Questionnaire .............................................................................................224
Appendix C: Interviews Questionnaire .......................................................................................240
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Acknowledgement
A special thanks to my supervisor, Dr. Rebecca De Coster, who has provided
invaluable assistance and has guided this research to achieve its objectives. I also highlight
my appreciation for the Riyadh Chamber of Commerce and Industry for the assistance in
surveying their registered firms and allowing access to their resources. I also appreciate
and thank the King Abdulla scholarship program for giving me this chance to undertake
PhD research. They have provided me with all of the financial and administrative support
necessary to reduce the obstacles of this long journey.
Dedication
I share with my family all of the beautiful and difficult moments. This thesis stands
primarily on the support of many people. I wish to highlight my appreciation of my
parents, who provided me from childhood with all possible support and made me believe
that dreams are achievable. I also highlight my wife for her support, patience, and
sacrifices during this long journey. I am very thankful for my son, Abdullah, for his smile
that boosts me day after day with energy and charges my soul to confront challenges. I also
appreciate my brother and sisters for all of their love and support.
Publications and Conferences
Albesher, A., & De Coster, R. (2013). Critical routines for higher innovation prosperity: A
dynamic capabilities perspective. CADMC, Cambridge University, Cambridge.
Albesher, A., & De Coster, R. (2012). The impact of information technology resources
on SMEs’ innovation performance. DRUID, Cambridge University, Cambridge.
De Coster, R., & Albesher, A. (2012). The development of mobile service applications for
consumers and intelligent networks. In I. Lee (Ed.), Mobile Services Industries,
Technologies, and Applications in the Global Economy (pp. 273–289). Hershey, PA: IGI
Global.

Seminars
Albesher, A. (2012). Critical practises for higher innovation performance. ResCon. Brunel
University, London.
Albesher, A. (2012). The impact of IT on the firms’ innovation performance. Advanced
Manufacturing and Enterprise Engineering (AMEE) seminars. Brunel University, London.
Albesher, A. (2011). System of innovation in Saudi Arabia. ResCon. Brunel University,
London.
Albesher, A. (2011). Intelligent cities. Advanced Manufacturing and Enterprise Engineering
(AMEE) seminars. Brunel University, London.
Abbreviations

ACAP Absorptive capacity
AMB Ambidextrous capacity
ANOVA Analysis of variance
EFA Exploratory factor analysis
ENV Environment turbulence
EXL Exploitative innovation
EXR Explorative innovation
KMO Kaiser-Meyer-Olkin measure of sampling adequacy
KPIs Key performance indicators
PACAP Potential absorptive capacity
PCB Printed circuit board
RACAP Realised absorptive capacity
RAD Innovation radicalness index
RBV Resource-based view
RF Radio Frequency
SDK Software development kit
SMEs Small and medium enterprises
VRIN Valuable, rare, inimitable, and non-substitutable

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Chapter 1: Introduction
1.1 Background of The Study
Markets are becoming more dynamic, day after day, thus increasing the necessity
to comprehend how this dynamism affects innovation performance (Eisenhardt & Martin,
2000; Teece, 2007; Zahra & George, 2002). The first stages of the innovation funnel model
are critical and may affect whether the results of new product development will lead to
innovation failure or prosperity (Khilji et al., 2006; Sun & Anderson, 2010). Yet
innovation is a complex phenomenon; a firm’s performance may differ from that of others,
not only based on its internal capabilities but because of the effect that the macro-
environment has on the firm’s ability to succeed in innovation. Therefore, the external
environment, and the way in which organizations interact with it, impacts the transition of
knowledge to practice and influences the modification of the organizations’ routines.
According to Komninos (2008), “These fundamental processes of innovation (routine,
search and selection environment) create a cognitive space, which is specific and exclusive
to each environment” (p. 51). Nelson and Winter (1982) suggested that innovation is
constrained by the technology environment, which acts as a “technology regime” in which
an organization conducts its activities. They added that the technology regime has two
forms: the entrepreneurship regime, which is linked to scientific research, and the
routinized regime, which is linked to the firm’s knowledge base. Breschi (2000)
highlighted four dimensions of a technological regime: opportunity conditions,
appropriable conditions, cumulativeness of innovation, and the nature of knowledge.
Komninos (2008, p. 49) suggested that innovation performance is also associated
with external factors, such as expenditures of other firms and universities on R&D, in
addition to internal knowledge activities (firm’s investment in its own R&D).
Consequently, different agglomerations of firms, universities, and other institutions result
in an uneven distribution of innovation-performance firms located in different clusters,
regions, or nations. Piergiovanni and Santarelli (2001) demonstrated the same phenomenon
in France (i.e. the spillover from universities showed a significant source of innovation in
private and state-owned industries when compared with the in-house research). This
indicates that firms in less-developed countries may not have much benefit from the local
knowledge spillover, and, hence, the ability to reach valuable external knowledge at a
1
global level is imperative. Many developing countries exhibit moderate or even low
nd
innovation performance. For instance, Saudi Arabia is ranked 42 by the Global
nd th
Innovation Index as 42 in 2013 but was 54 in 2011. The report highlights key aspects of
the environment that may affect innovation, such as institutions, human capital,
infrastructure, market sophistication, and business sophistication. Saudi Arabia is the
largest country in the Gulf region of the Middle East and one of the largest oil providers in
the world. Between 2002 and 2011, the Saudi Arabia stock market recorded an average
growth of 26.36% in trading value (Ibrahim, 2013). The Saudi economy has expanded
dramatically in the last decade as a result of its huge role in the oil market, yet the Saudi
government understands that the oil economy is not sustainable and is urging
transformation into a more knowledge-based economy (Onsman, 2010).
At the heart of the knowledge economy, innovation is critical for the long-term
survival of companies (Trippl, 2010). Innovation is a complex phenomenon, and it is
critical to identify the scope of the research and the perspective of the analysis. Since firms
are a critical, active part of any national innovation system, it is vital to examine firms’
innovation activities and measure their innovation output. Therefore, analysing information
from firms regarding innovation activity may help to improve the way they pursue
innovation and how governments stimulate such activity. Studying innovation at the firm
level is part of the complexity of innovation research (Keupp et al., 2012). This is due to
fragmentation of views in regard to the relationship between innovation, resources, and
performance (Keupp et al., 2012). Hence, the analysis of innovation performance at the
organizational level requires more attention (Keupp et al., 2012). This thesis blends the
dynamic capabilities theory with networking theory, absorptive capacity, and ambidextrous
capacity to identify factors that might better explain the innovation performances at the
firm level. It proposes a more comprehensive model that integrates different views of
innovation capabilities, portraying how these different capabilities work together to
facilitate knowledge transition and development inside firms. It is proposed that at the
recognition stage of external knowledge and opportunities, a firm’s breadth of knowledge
sources, market intelligence generation, and internationalization orientation are critical
factors that may stimulate its ability to recognise, absorb, and use knowledge. Potential
absorptive capacity and realised absorptive capacity comprise the routines that help firms
acquire, assimilate, transform, and exploit absorbed knowledge into innovative products
and services. Ambidextrous capacity stimulates the firm to pursue both incremental and
radical innovation (through exploitation and exploration innovation strategy, respectively)
2
in order to maintain both a long-term and short-term competitive advantage. The research
further examines the influence of information-technology capabilities on firms’ dynamic
capabilities.
1.2 Motivations for the Research
This research attempts to identify and test factors that affect Saudi firms’
innovation performance and the impact of information technology on these factors. This
research is practically and academically motivated. Academically, research in the area of
innovation has recently captured a large amount of attention. It is a multidisciplinary field
that comprises different perspectives: strategy, design, entrepreneurship, new-product
development, human resources, and firm performance are a few examples of areas that are
overlapped to comprehend innovation success. According to Keupp et al. (2012), current
knowledge regarding firms’ innovation is fragmentary, and firm-level research requires
more attention. Furthermore, internationalization of learning processes has become an
attractive area of research, as new opportunities for firms may exist outside their local
markets. Hence, the interplay between firms and foreign knowledge is important to
investigate (De Clercq et al., 2012). These two points motivate this research to explore the
factors that may affect the abilities of Saudi firms to learn and utilise knowledge for better
innovation performance. It is urged that this gap be addressed through vibrant and rigorous
analysis of relationships between distinctive innovation capabilities, including the role of
information technology in the context of the innovation pathway (Joshi et al., 2010;
Benitez-Amado et al., 2010; Easterby-Smith et al., 2009).
This research is also motivated by the recent theory of dynamic capabilities by
Teece (2007) and utilises different areas of knowledge deductively in an integral effort,
including networking theory, knowledge absorptive capacity, innovation strategy, and
information technology. This research attempts to take Teece’s (2007) theoretical model a
few steps further by identifying and testing related factors through operationalisation and
empirical investigation. This should contribute to the gaps highlighted by scholars
(Volberda et al., 2010; Datta, 2012; Teece, 2007; Keupp et al., 2012; Gupta et al., 2006;
Benitez-Amado et al., 2010; Easterby-Smith et al., 2009) for advancing and enriching with
empirical data the field of dynamic capabilities, absorptive capacity and the role of IT in
the context of innovation. This research also contributes to the gaps proposed by (Iqbal,
2011; Shin et al; 2012) regarding capabilities and innovation of Saudi firms.
3