8.- Outline of the thesis

The following sections provide an overview to the DMC concept (section 2.4.1), followed by the discussion of DMC research (section 2.4.2).

2.4.1 Overview

Dynamic managerial capability is the research focus of this thesis as it “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). The DMC research to date has involved positioning DMCs as the analog to the more organizational DC literature as noted above (Adner & Helfat, 2003) because it involves understanding the capacities of individual managers. There have been few studies conducted into DMCs—only four have focused on them in Grade Four business journals from 1997-2013 as presented in Table 2.4 above. These articles are discussed next.

2.4.2 DMC Research

The DMC concept originated with Adner and Helfat (2003) in their article entitled Corporate Effects and Dynamic Managerial Capabilities published in the Strategic Management Journal. Their research involved an empirical analysis of 30 companies from the U.S. petroleum industry from 1977-1997, and used archival data from the Wall Street Journal to assess managerial capabilities.

Their article defined DMCs as “capabilities with which managers build, integrate, and reconfigure organizational resources and competences” positioning DMCs as an analog to “more organizational ‘dynamic capabilities’” (p. 1012). Their definition reflects, and is compatible with the one used here, which defines DMCs as “capacities”

to reconfigure resources in terms of creating, extending and/or modifying them—

reflecting later literature (Helfat et al., 2007), and avoiding criticisms of defining capabilities as capabilities (Barreto, 2010), and distinguishing DMCs as capacities, which the research conducted in this thesis recognizes as impacting on “ordinary”

capabilities (Winter, 2003).

They proposed that DMCs have key underlying attributes that are “managerial human capital, managerial social capital, and managerial cognition” (p. 1013), as shown in the figure below, which shape the resource and capability base of an organization.

Each is described next.

Figure 2.4 Adner and Helfat’s Underlying Attributes of DMCs

Source: Adapted from Adner and Helfat (2003).

2.4.2.1 Managerial Human Capital

Managerial human capital includes the skills, knowledge, and experience possessed by the manager of the organization. Adner and Helfat (2003, p. 1020) referenced Becker (1964), and noted that managerial human capital requires “investment in education, training, or learning more generally,” which includes on the job training, and involves

experiential learning (e.g., that which is based on prior work experience). Managerial human capital is an attribute of DMCs useful in understanding the heterogeneity of managerial capacities because managers differ in their skills, knowledge, and experience. Managerial human capital is also associated with differences in firm performance (Bailey & Helfat, 2003).

2.4.2.2 Managerial Social Capital

Managerial social capital refers to networks of relationships among managers and the people they are in contact with. The idea of social capital as it applies in the social sciences is that this type of capital (e.g., social networks) has value. It is analogous to other resources that create value (i.e., physical capital and/or human capital).

Managerial social capital includes formal and informal networks, which can manifest inside and outside of the organization (Adler & Kwon, 2003). Adner and Helfat (2003) found that internal ties can help managers to network and obtain information (citing Burt, 1992) and external ties (e.g., directorships) can lead to improved performance (citing Gelatkanycz & Hambrick, 1997).

2.4.2.3 Managerial Cognition

Cognition refers to the “process by which sensory input is transformed, reduced, elaborated, stored, recovered, and used” (Neisser, 1967, p. 4). It involves mental processing, that uses abilities such as perceiving, thinking, reasoning, learning, and understanding, and involves problem solving and decision-making (Walsh, 1995;

Elstein & Schwartz, 2002). Managerial cognition as defined in their article “refers to managerial beliefs and mental models that serve as the basis for decision making”

(Adner & Helfat, 2003, p. 1021) and is used to evaluate future alternatives and consequences (March & Simon, 1958; Cyert & March, 1963), is subject to bounded rationality (Simon, 1947, 1955), and is critical in shaping strategy.

Adner and Helfat’s work is foundational with regard to the study of DMCs because their research showed that DMCs have the underlying attributes that involve managerial human capital, managerial social capital, and managerial cognition. Their research showed that corporate strategy and the decision-making process, which is sensitive to the need for change, helps to explain variances in profitability in firms and, importantly, that “corporate strategy does in fact matter,” and “corporate managers matter” (p. 1023).

They called for additional research into DMCs, including underlying attributes of them

and also how DMCs affect strategy and strategic change, and suggested that additional research include both quantitative and qualitative assessment.

Sirmon and Hitt (2009) wrote Contingencies Within Dynamic Managerial Capabilities: Interdependent Effects of Resource Investment and Deployment on Firm Performance published in the Strategic Management Journal. Their research empirically assessed resource investment and deployment effects on performance using archival data on 284 firms in the regional banking industry within the U.S. Their study highlighted the need to understand how managers effectively utilize resources to affect performance.

Sirmon and Hitt found the DMC concept as developed by Adner and Helfat (2003) has helped address how managers use resources relative to performance, but that there is critical omission in the literature in that asset orchestration (AO)—which is “central” to the DMC perspective, is “rarely investigated” (citing Helfat et al., 2007), and noted more AO studies are needed as this area is “a central component of dynamic managerial capabilities and of resource management” that “highlights the importance of integrating (matching) resource investment and deployment decisions” (p. 1375).

The results of their study showed that when managers deviate from rivals with respect to investing in human/physical capital, performance might suffer, and therefore a proper fit between investment and deployment is needed. They found that understanding how managers conduct AO is something that affects the firm’s success, and thus practitioners need to understand and develop these skills to optimize performance. In the article, they called for additional research to be conducted into how managers orchestrate assets to compete.

Martin (2011) wrote Dynamic Managerial Capabilities and the Multibusiness Team: The Role of Episodic Teams in Executive Leadership Groups published in Organization Science. The study used an inductive approach and this involved a constant comparison analysis of case study data that examined general managers (GMs) of six firms in the “dynamic” software industry. The study focused on the empirical assessment of executive leadership, researching the relation between business unit GMs, and firm performance.

Martin’s study used constructs developed in Helfat et al. (2007), and made the distinction between an “operational” capability and a “dynamic” one. The former is a capability used to make a “living in the present” and is impacted by a DC. This is

analogous to the distinction made by Winter (2003) between “ordinary” and “dynamic”

capabilities—a distinction supported in this thesis. Martin also used the concepts of technical and evolutionary fitness and Teece’s (2007, 2009) taxonomy to disaggregate DCs, and thus a precedent was established in that these constructs were used to research DMCs, as is done in this thesis.

Martin’s (2011, p. 5) research showed that executive leadership groups played a critical role in sensing and seizing opportunities and managing threats in a purposeful way, and that it is this “managerial intent [that] influences organizational outcomes (citing Augier & Teece, 2009)” which differs from organizational routines, and that DMCs “differ from ad hoc problem-solving behaviors” because “they contain elements of patterned and practiced behaviors that must be repeated to be sustained (citing Winter, 2003).” The research further found DMCs (1) improved information flow, (2) reduced barriers within an organization, and, importantly, (3) enhanced innovation. The article called for additional research into DMCs, given the lack of theoretical and empirical knowledge about them, especially in periods of significant change.

Kor and Mesko (2013) wrote Dynamic Managerial Capabilities: Configuration and Orchestration of Top Executives’ Capabilities and the Firm’s Dominant Logic, published in the Strategic Management Journal. This article was discovered and reviewed as a part of the literature re-review and synthesis. The article is important to the research conducted for this thesis because it used the similar conceptualizations used here. For example, the definition of DMC used was as in Helfat et al. (2007), and also similar constructs were used with respect to disaggregating DMCs. The conceptual measuring construct of evolutionary fitness was also discussed in their article.

The important ideas in Kor and Mesko’s article include that there are critical linkages with DMCs and the firm’s dominant logic (Prahalad & Bettis, 1986) because managerial human capital and managerial social capital, and cognition (Adner & Helfat, 2003) “give rise to managers’ dominant logic, which in turn is linked to the firm’s dominant logic” (Kor & Mesko, 2013, p. 241). The article develops another area of interest relevant to the research conducted here in that their study posits that CEO’s engage in AO and shape their executive’s learning and adaptation capacities such as by impacting on their absorptive capacities (Cohen & Levinthal, 1990; Zahra & George, 2002).

Their findings discuss the feedback effects involved. For example, the search, selection and configuration/coordination activities that include the AO of senior executive capabilities by a CEO can produce a positive feedback effect, which in turn, strengthens the CEO’s DMCs. It is these feedback effects that complete the “interplay”

between DMCs and the “firm’s dominant logic” (Kor & Mesko, 2013, p. 241). These ideas are fully compatible with the constructs used to identify (i.e., AO) and classify DMCs in this thesis (i.e., LBDMC, IBDMC) and, interestingly, the author’s call for additional research to be conducted on business executives, such as when they create a

“positive team environment” as was done in this thesis with regard to the construct PL.