Advances in Applied Business Strategy: Volume 10

The paper “Linking learning, customer value, and resource investment decisions: Developing dynamic capabilities” by Graham Hubbard, Angelina Zubac, and Lester Johnson suggests that strategic capabilities are developed when market learning processes are directly integrated into a firm's investment processes. Explicitly linking market learning processes and resource investment decisions is essential in building and maintaining competitive advantage. Based on a broad theoretical exploration, this paper presents six derived hypotheses about learning and dynamic capabilities development:H1Successful firms have higher levels of dynamic capabilities than less successful firms.H2Dynamic capabilities are more important and better developed in successful firms in dynamic markets than in mature markets.H3Successful firms learn more about customer value than do less successful firms.H4Managerial perceptions of how customer value can be created are more aligned in successful firms than less successful firms.H5Resource investment decision making is more aligned with market learning processes in successful firms than less successful firms.H6Firms in dynamic markets are more oriented to customer learning than those in mature markets.The paper argues that previous work on analyzing capabilities of organizations has not been directly linked to how firms actually learn, specifically about customers and about ways of creating customer value. Yet it is the process of learning about customers that is critical for creating value for customers and for targeting investments in resources that support the activities and processes necessary to create and deliver that value. The integration of learning about customers into resource investment decision processes is thus argued to be critical to the creation of firm value and to the development of dynamic capability in an organization.

This paper suggests that firm strategic capabilities are developed through accumulated learning and associated investment processes and that it is these learning processes, and the resource investments that follow from decisions about them, rather than the activities or resources of the firm per se, that provide a basis of sustainable competitive advantage. Specifically, we suggest that gathering information about customer behavior, the managerial perceptions that come from learning about customer behavior, and the investment decisions that follow from those perceptions provide the basis for the development, or for the failure to develop, of firm capabilities. We further argue that such learning processes will differ with market environments, and that firm performance will reflect such learning processes actually develop in different market environments.

In this paper we discuss the relationship between the competence-based perspective and market positioning. We argue that a product, which as the ultimate expression of a firm's competence reflects a firm's distinctive competences, should have the potential to achieve a superior market position. We suggest how a specific capability of central importance in product creation – modular design capability – may help firms to achieve advantageous market positioning. In particular, we develop a framework for assessing the potential impact of modular design capability on customers’ perception of competing products in the market for mobile phone handsets.

Living art organizations present a special interest in research stressing cognitive processes and development of intangible resources like knowledge and capabilities. In living art organizations, production processes like rehearsals and tunings whose goals are to develop both tacit and tangible capabilities are readily observable and have undeniable effects on performance quality, revenues, and costs. The observations of four opera houses support the conjecture that strategy and organizations could be preconditions for learning.

The competence perspective requires deploying various organizational resources, skills, and capabilities in creating organizational-level skills. Of particular interest in organizational behavior is the effect of leaders on developing skills. This paper examines an emergent organizational capability, the Context-for-Learning, using virtual experiments and an agent-based model. In examining the developmental paths of this skill, we found that both the organization's composition and the leader's leadership style had very different effects on the developmental paths. The set of followers in an organization and the leader's leadership style are both critical in determining the developmental paths of the organizational skill, the Context-for-Learning. However, the leadership style of a highly skilled leader with a high set of followers did not matter.

The competitive arena in business environments has changed in many ways. The globalization of markets, rapid technological change, shortening of product life cycles, and the increasing aggressiveness of competitors require firms to respond flexibly and rapidly (Grant, 1996; Volberda, 1996). Not just fast-moving, high-tech industries have been facing these changes; even industries that were supposed to be stable are heating up (D’Aveni, 1994). As competition intensifies and the pace of change accelerates, firms are increasingly confronted with a tension between exploiting existing competences and exploring new ones (Floyd & Lane, 2000; Levinthal & March, 1993; March, 1991). Firms seek to adapt to environmental changes, explore new ideas or processes, and develop new products and services for emerging markets. In addition, they need stability to leverage current competences and exploit existing products and services (Benner & Tushman, 2003; Sanchez & Heene, 1996).

A firm's resources and capabilities can form the basis for performance differences among firms. The question is “how do firms face the challenge of acquiring resources and developing capabilities during their day-to-day activities in order to face competition?” Case study research involving day-to-day activities of a project-firm in a B2B context suggests that social capital – the sum of structural, relational and cognitive resources – built in networks increases the ability to face the challenge of resource acquisition and capability development even during daily activities. A communication network study clearly maps this influence of social capital. More precisely, dominant or powerful employees should be avoided. Next to organizational structures characterized by hierarchy, high and low communications are also not desirable. Moreover, too much trust can harm firms’ abilities to develop capabilities when performing day-to-day activities. Even a complete shared vision hinders firms’ capability development during their day-to-day activities. This study supports the negative impact of overembeddedness; shows the value of articles discussing the downside of social capital and confirms the paradox of embeddedness: overembeddedness as well as underembeddedness has negative implications for a firm's performance. Moreover, from the research results important managerial lessons can be deducted, such as (1) the basis for performance differences can be formed during day-to-day activities and (2) social capital management is a critical success factor in outperforming competitors. Therefore, managers should be aware of the potential value embedded in their day-to-day activities and relationships based on economic transactions. They can leverage their day-to-day activities and relationships based on economic transactions and consider them as sources for resources and capabilities that can be deployed in their search for a competitive position. Moreover, managers should not only pay attention to their financial and human capital but also to the social capital built in the firm's networks and in their employees’ networks. Social capital can influence – among others – divisional learning and divisional capability development.

The vulnerability of capabilities – their susceptibility to depreciation of their strategic value – results from an unbalance between exploitation and exploration within a capability as well as between different levels of capabilities. This vulnerability is examined under the lens of bounded awareness in which the issues of timing, success, and beliefs affect the bias in the deployment of capabilities. Different levels of capabilities are prone to become vulnerable because of internal and external forces. Interfirm knowledge transfer is suggested as a way to reduce the vulnerability of capabilities.

This paper proposes a semi-Beerian frame of reference for designing a business organization as a system with four subsystems and eight modes of thinking and interacting in both offering and resource markets. A systemic organizational competence includes an ability to connect a business unit with its markets. It possesses absorption, attenuation, and amplifier capacities. It guides and re-specifies all technology, embedded knowledge, capabilities, and other resources that together enable a business unit to act in the predefined, emerging, or innovative ways needed for goal attainment. Ex ante, various research traditions were regrouped into eight schools of thought on business management based on Porter's frameworks, resources, competences, knowledge, organizations, processes, business dynamism, and evolution. The findings reveal that various core, distinct, organizational, higher, and lower competences and capabilities play both primary and secondary roles, across the eight schools of thought, within a population of 84 competence-related business-management concepts published between years 1990 and 2002. Most authors do not deal with competitiveness boundary setting and modeling. A new frame of reference points to some viable avenues of producing highly applicable competence-based concepts as four semi-Beerian subsystems (boundaries, models, designs, and actions). Managing a business unit successfully involves eight kinds of explicit and tacit knowledge, situational information, reflections, decisions, models, designs, and interactions. It is proposed that a high degree of systemic advancement is one of the necessary attributes of any competence-based concept that will be proven to be highly applicable in managing a real dynamic business. Thus, competence-based scholars are encouraged to adopt the suggested assumptions, redesign their concepts as one or several semi-Beerian subsystems, and thus advance their school of thought markedly in the future.