Theoretical interpretations of capability begin to address the second research question, ‘What are the practices, expressed as routines that generate capability to successfully tender in the case firm?’ The evolution of organisational capability can be traced back to Penrose (1959), who laid the foundations for the resource-based view (RBV) in strategic management literature. Subsequent definitions later emerged (Barney, 1991), with the addition of a core capability perspective (Leonard-Barton, 1992), a ‘knowledge-based theory of the firm’ (Grant 1996) and a dynamic capability firm perspective (Helfat, 1997; Teece, 2007; Teece and Pisano, 1994; Teece et al, 1997; Eisenhardt and Martin, 2000). Capability literature spans a wide field, but there are two broad interpretations in strategic management literature about capability building mechanisms as shown in Figure 3.2 below: the resource-based view (RBV) that also incorporates the knowledge-based view (KBV) and core capabilities and rigidities; and a dynamic capability perspective.
Figure 3.2 Broad interpretations of capability
Conceptualising firm capability
The resource-based view (RBV) is a dominant and influential theory in the strategic management literature to conceptualise firm competitive advantage and management decision-taking (Barney, 2001). It explains
The resource- based view of capability (RBV) A dynamic capability perspective
Core capabilities and rigidities The knowledge
based view of capability
89 sustainable, competitive advantage through rent-earning capabilities of internal firm resources that are protected from imitation. Penrose (1959) highlighted the importance of resources to a firm's competitive position and the fact that firm growth is aligned to how its resources are deployed. RBV continues to be recognised as an accepted model of business growth (Macpherson & Holt, 2007). Penrose conceptualised a firm as “a collection of productive resources” (Penrose, 1959, p.24) where their competitive capacity relied upon effective internal exploitation of resources. The focus of attention of the RBV is the internal environment of the firm (Wernerfelt, 1984) and resources are expressed as forms of capital. The RBV is also a vehicle to formulate an explanation of the foundations of capability as it is about the ownership and mobilisation of resources around opportunity. It can explain how firms acquire and keep competitive advantage over time (Eisenhardt & Martin, 2000), when strategic capabilities are the enactment of internal resources.
Sustained competitive advantage comes from the resources a firm controls (Barney, 1991,2001). RBV literature focuses on four firm attributes to hold sustained competitive advantage, being valuable, rare, imperfectly imitable and non-substitutable (Barney, 1991). Exploration of firm processes will identify how resources to successfully tender fit within the VRIN framework. The RBV suggests that the profit-generating potential of resource heterogeneity and immobility is greater when these attributes are generated inside the firm through in-house resource investments. This model does not take account of the structural conditions and social complexity of the wider tendering environment, which can render firm access to information as incomplete and heterogeneously distributed. Indeed, the static nature of the RBV, 'the processes through which particular resources provide competitive advantage remain in a black box' (Barney, 2001, p.33), has been criticised for lacking a more dynamic approach (Priem and Butler, 2001). The RBV has not taken into account how resources accrue through social structures acting on entrepreneurs and firms. Finally, the RBV fails to address the dynamics of competition.
90 Grant’s knowledge based view of the firm (1991), or KBV, is situated within the RBV to present the notion of firm’s resources and capabilities as the building blocks for strategy formulation. Grant refers to six types of resources (financial, physical, human, technological, reputational, and organisational) and he places knowledge (human resources or people- based skills) as the primary strategic resources of a firm. Grant (1991) analysed capability in terms of the role of knowledge within a firm, which concurs with an organisational competency perspective (Prahalad and Hemel, 1994). Knowledge is positioned as the primary productive resource in a firm, and assumptions are made about knowledge characteristics. The assumptions are that knowledge as a primary resource has strategic significance, that it can exist in explicit and tacit forms, that knowledge transferability is key, and that, where information resides in a tacit format, individuals are the primary repositories.
A five- step analytical framework for a resource-based approach to strategy formulation is proposed (Grant, 1991) to: i) analyse its resources; ii) appraise its capabilities; iii) analyse its competitive advantage; iv) select a strategy; and, v) identify resource gaps, using resources and capabilities to upgrade them. The KBV offers a useful insight into the microstructure of capabilities for team-based integration accessing and integrating knowledge and focusing on the role of knowledge in routine creation. In a dynamic external market environment, Grant positions a firm’s resources and capabilities as reliable and enduring for competitive strategy deployment. Based upon the literature review it is likely that knowledge will emerge as a primary productive resource. Thesis fieldwork will look for its existence in tacit and codified processes.
Staying within a knowledge-based view, Leonard Barton (1992) claims that it is a firm’s knowledge set that provides and distinguishes its competitive advantage. She classifies capabilities according to their function, and her work is cited in dynamic capability literature by Teece et al (1997) and in RBV literature (Wernerfelt, 1984). Capabilities are categorised as core, supplementary or enabling. A core capability refers to a firm’s resources,
91 processes, or abilities that make it distinctive from its competitors, and it possesses four dimensions: i) skills and knowledge; ii) physical systems; iii) managerial systems; and iv) values and norms. As such, it will provide sustainable competitive advantage (Leonard-Barton, 1995) and it contributes to the perspective of absorptive capacity (Cohen et al, 1990). Supplementary capabilities exist to add value to core capabilities and are open to imitation. In contrast, enabling capabilities not only add value, but also are also necessary to distinguish a company competitively. The question arising is whether tendering is itself a core capability, with firm- specific skills that are less open to competitor imitation. If it is, then Barton’s claim that a core capability can also act as a liability must be considered. In dynamic environments, a core capability can act as a rigidity (Leonard- Barton, 1992), precluding a firm from flexing and shaping its way of acting. A second broad interpretation of capability theory in strategic management is dynamic capability theory, defined as the “firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al, 1997, p. 516). Whereas the resource based view focuses on resource possession, dynamic capability theory is concerned with resource utility. It may assist with exploration of the often hidden processes that enable a firm to respond to change and tackle new opportunities. A dynamic capability (DC) perspective (Amit and Paul, 1993) also sees a firm’s capability in deploying resources through firm processes. DCs are further described as “tangible or intangible processes that are firm specific and developed over time through complex interactions of a firm’s resources.” (Amit,1993, p.35). Whereas the RBV focuses on a firm’s internal strategy in stable environments (Priem and Butler, 2001), a dynamic capability viewpoint can offer an explanation about how firms sustain resource-based advantages in dynamic environments (Ambrosini et al, 2009). A dynamic capability perspective pays attention to the external focus of a firm’s resources to respond to environmental evolution (Teece and Pisano, 1994; Helfat, 1997; Teece et al, 1997; Eisenhardt and Martin, 2000; Teece, 2007). In a changing environment for procurement routines, suppliers are being required to modify their resource base. Dynamic
92 capabilities are considered to be built rather than bought (Makadok, 2001) because they are difficult to imitate, and as organisational processes (Helfat, 2007) or routines that evolve. A typology of dynamic capability routines already exists, including ideas generation, new product development, and new process development capabilities (Ambrosini et al, 2009). However, it is known that in small firms the founder and firm resource capital continually changes over time, and that this affects the development of dynamic capabilities (McKelvie et al, 2009).
Several ideas are taken forward from DC theory to examine empirical findings; are there any dynamic routines that support tendering?, what role does DC play in resource renewal, and, how can DCs be observed in fieldwork? The next section pays attention to literature about routines.