2014 International Symposium on Technology Management and Emerging Technologies (ISTMET 2014), May 27 - 29, 2014, Bandung, Indonesia
A Review of Technological Capability and Performance Relationship in Manufacturing Companies Nurazwa Ahmad, Siti Norezam Othman, Halim Mad Lazim School of Technology Management and Logistics College of Business, Universiti Utara Malaysia Kedah, Malaysia
[email protected],
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[email protected] machinery and equipments, and the software which is the procedure and habitual related to organization’s word and knowledge embodied to the hardware [3]. There are mainly three areas in which technological change has primarily occurred in; information technology, materials technology, and manufacturing process technology [4]. A basic concept in the development of TC in an industrial organization involves the technological learning process, and TC is needed to generate and manage technical change [5] (see Figure 1).
Abstract—Manufacturing plays a very important function in the economy of most countries in nowadays age. Because of the dynamic character of manufacturing itself, its market and environmental situations, manufacturing firms are facing tremendous significance challenges. Developing countries are striving to compete in the global intense market, including Malaysia, and for that reason, this key industry needs to maintain and boost local capabilities for the economic strengthen and stability. As the technological capability (TC) has a strong involvement in the production and operation sectors which are the cornerstones of each manufacturing company, it should be improved and monitored periodically. The nature of a long term commitment of the technological capability creation and accumulation requires a huge considerable effort from a company to realize the effects of TC have on performance measures in every aspect while gaining competitive advantages and sustaining commercial success in the local and international market within their operational periods. Based from a resourcebased view, it is in congruence that capabilities will promote firms’ competitive advantage by improving the performance. The major intention of this paper is to have an overview on how TC actually relates towards performance measures in manufacturing companies. Keywords- Technological manufacturing companies
capability;
firm
This paper is prepared as follows. First, the operationalization of TC is reviewed. Following, will be the description on the types of TC. Next, draw attention to how TC is related to the manufacturing companies. Then, a reporting of previous literatures on the TC and performance relationship is done. As a final point, the paper ends with a conclusion and some recommendation for future studies.
performance;
I. INTRODUCTION Substantial bodies of literatures on technological capability predominantly investigated on various roles of the capability, to some point they show the importance in development and acquisition of technological capability for industrial growth. Malaysia is still behind to catch-up to the higher level of technology. It is proposed that the government should stimulate an upgrading in technological capacity by deploying learning policies for better spillovers among local firms [1]. The contribution of manufacturing sector through the purchasing of technology is widely recognized as a method to upgrade local technologies. For instance, the case of automobile manufacturing, Malaysia can adopt the technology from the merger of automobile frontiers of Nissan-Renault from Japan and France to raise competitiveness in local firms hence upgrading the local TCs [2]. Basically, technology in organization consists of the hardware which includes
978-1-4799-3704-2/14/$31.00 ©2014 IEEE
Figure 1. Technological accumulation: basic concepts and terms
II.
WHAT IS EXACTLY THE TECHNOLOGICAL CAPABILITY?
TC is an expression used to encompass the system of activities, physical systems, skills and knowledge bases, managerial systems of learning and incentive, and values that generate an extraordinary benefit for a company. Normally, a firm is capable of operating, maintaining, adapting, and assimilating the transferred technology. However, the issue arises is, to what extent the firm TC level can create a competitive environment on the firm which might outperform
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rivals in the highly competitive global market. Therefore, two main dimensions of TC which is considerably must be evaluated are the activities and strategies [6]. The activities consist of research and development (R&D) in a sense of patenting, product launching, and problem solving whereas the strategies will consider on the technology sourcing strategy. Lately, there have been substantial numbers of researches been done in TC field. The studies revealed that TC played important roles in achieving competitive advantages and improving the performance.
competitor. [20]
[21]
[22]
To fully utilize the function of TC, hence, one must identify on which level the TC is assessed whether it is at the lowest level of machine, plant, firm, industry, industrial clusters or to the highest national level. In spite of the TC function, it is incomplete if the definition of TC itself has not been explored before any TC assessment is being done. To support this statement, the paper provides a bulk of TC definitions from previous researchers (see Table I). Notably, earlier studies have defined TC variedly. Even though the meanings were reflected to a differed study in which according to certain aims, however, the definitions were not so much different from one another, as most of them operationalized TC in the similar context of manufacturing and technology. TABLE I.
Definition
[7]
The degree of capability of organizations in developing new products, which related to the organizations’ age. The capability to execute all technical functions entailed in operating, improving, and modernizing firm's productive facilities. The resources needed to generate and manage technical changes, which are accumulated and embodied in skills, knowledge, experience, and organizational system. The ability to select technologies appropriate for the work being undertaken, the ability to absorb and adapt technologies into local settings, and the ability to develop new technologies, processes and products via local innovations. The ability to perform any relevant technical function or volume activity within the firm including the ability to develop new products and processes and to operate facilities effectively. The ability to adapt or assimilate technology imported from abroad and to incorporate the additional and distinct resources needed to manage and put to productive use the newly acquired technology. The skills, knowledge, and experience required for a firm to achieve technological change at different levels. The set of skills the firm has in building and leveraging different technologies and system. The resources needed to generate and manage improvements in processes and production organization, products, equipment and engineering projects. The knowledge and skills required for firms to choose, install, operate, maintain, adapt, improve, and develop technologies. The ability of a country to choose, acquires, generate and apply technologies which contributes to meeting its development objective The assimilation and application of the technological knowledge from R&D activities to production. The firm's ability to be effective during the transformation process of turning inputs into outputs, relative to its
[8] [9] [10]
[11]
[12]
[13] [14] [15] [16] [17] [18] [19]
[23] [24] [25]
To recap, a set of knowledge, skill, experience, and ability to select technologies, set up, operate, assimilate, sustain, advance, and extend new values to the processes and products in a dynamically changing manufacturing environment is best describes the term; Technological Capability. TC also comprised of functional abilities, in which reflected an organization’s performance through various technological activities [26]. Actually, it is the idea of how to manage the technology strategy of a firm by identifying, implementing, maintaining and improving the specific TC. Furthermore, an ongoing concept and studies on TC will provide a belief to the understanding of dynamic capability of a firm [27]. The collaboration of concepts between technology strategy and dynamic capability of a firm, hence, creates a strategic capability for the organization to achieve the competitive advantage thus surviving the international market challenge.
TECHNOLOGICAL CAPABILITY DEFINITIONS
Reference
The ability to develop and design new products and processes and upgrade knowledge about the physical world in unique ways, thus transforming this knowledge into designs and instructions for the creation of desired outcomes. The generic knowledge-intensive ability to jointly mobilize different scientific and technical resources which enable a firm to successfully develop its innovative products and/or productive processes, by implementing competitive strategy and creating value in a given environment. The skills and know-how required to manage, create, and extend the existing pool of technological knowledge. The resource needed to generate and manage technological change. The knowledge and skills embedded in individuals, organizations, and institutions located in a geographicallybounded area and conducive to innovative activity. To make effective use of technical knowledge and skills, not only in an effort to improve and develop products and processes, but also to improve existing technology and to generate new knowledge and skills in response to the competitive business environment.
III.
TYPES OF TECHNOLOGICAL CAPABILITY
Lall [28] provided the most extensive illustrative framework on the types (investment, production, and linkages) and levels (basic, intermediate, and advanced) of TCs. Previous scholars have studied on various kinds of TCs. and did mention the variety of capabilities in their studies for examples; acquisition capability [7, 29-32], investment capability [32-35], production or operation capability [13, 29, 31-35], learning capability [13, 34], process and product change capability [31], process and product centered capability [23, 24, 36], innovation capability [32, 35], networking capability [35, 37], human resource capability [30, 36, 37], and R&D capability [36]. Apart from that, TC has been classified into two areas it facilitates, which are the productive level known as functional-TCs and knowledge accumulation known as meta-TCs [13], it was also categorized into strategic, tactical, supplementary, and steering TCs [26]. IV.
TECHNOLOGICAL CAPABILITY IN MANUFACTURING
A large number of previous TC studies covered the manufacturing industry of electric, biotechnology, automotive,
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high technology, telecommunications, etc.; see for examples [24, 36, 38-44]. Table II gives a general picture of sector frequencies of some TC literatures ranging from 1980 until 2013. Manufacturing sector has dominant the TC studies which covered various type of industries; electronics and electrical, automotive and automobile component, machinery equipment, chemicals and petrochemical, non-metallic mineral products, metal processing, food processing, textiles, shoe and leather products, garments, furniture, etc., while, service sector covered areas of medical, software, etc.. Hi-tech sector covered areas of IT and software development; biotechnology, and electronics product development. A few more examples covered the areas of construction and leather industrial clusters. Figure 2 depicted a clear picture on sector coverage of TC studies. TABLE II. Sector Manufacturing
Frequency of research types
Literature [1, 2, 6, 7, 9-16, 18, 19, 21-25, 31, 33, 34, 36-61] [10, 17, 26, 29, 30, 47, 49, 53, 62, 63] [20, 64-67]
High-technology Construction
1 conceptual paper
[32]
Others
2 empirical works 1 case study 3 conceptual papers 42 empirical works 19 case studies 9 conceptual papers
[27, 28, 35, 68-70]
Total
TECHNOLOGICAL CAPABILITY AND PERFORMANCE
TC literatures have been substantially observed by researchers on their impact towards varied performance measures. Some of the past studies covered TC gives impact on export performance [23, 55-57], innovative output and technological impact [68], product innovation [64], innovativeness [69], launch strategy's success [66], value creation [21], system efficiency [17], technology development process [39], strategic orientation and strategy growth [65]. Most of the previous literatures have paying attention on the relationship of TC towards firm performance [18-20, 40, 47, 48, 58, 67]. For this reason, it is widely known that the development of TC and its strengthening help an organization to gain competitive advantages [26, 29, 52]. It is also utilized to generate performance in the technological development with the specific capacity of R&D-related resources. Figure 3 depicted the distribution of areas of study focus on types of performance evaluated. Despite the percentage of financial and accounting-based, innovation, and operational performances, it should be noted that on overall seventy literatures discussed in this paper, the 53 percent of others portion represented the studies that mostly covered the factors and critical elements towards TC development. Overall, it shows that TC is an important component of the organizational capabilities and need to be thoroughly considered by manufacturing companies and plays as a salient contributor to the firm performance.
SECTOR FREQUENCY IN TECHNOLOGICAL CAPABILITIES STUDIES 30 empirical works 13 case studies 5 conceptual papers 5 empirical works 5 case studies 5 empirical works
Service
V.
70
Note: Article [10],[47],[49] and [53] covered both manufacturing and service sectors.
Figure 3. Research focuses on TC studies
It was difficult and complex to interpret the relationship between TC and organization performance constructs [19]. Research on TC impact towards firm performance can be grouped into types of performance measures; financially accounting-based, see example [19-21, 47, 48, 58, 59, 65, 67] and non-financial, specifically innovation performance, see example [46, 60, 64, 69]. TC which plays quite a significance role on performance in manufacturing organization has been assessed much on the financial and innovation performance compared to operational manufacturing performance. Only few covered on the operational measures of performance such as, efficiency and strategic performance [40], cost and quality [38], and productivity [18]. A proceeding paper [70], provides a clear conceptual perspective and the development of the TC appraisal model. The paper also emphasized a gap on the lacking of information and empirical evidences pertaining to the operationalization of TC on business processes and its underlying effect on business performance. The paper assessed the importance of TC have on business performance measurement system and highlighted on the customer and financial perspectives. Notwithstanding the effect of TC on
Figure 2. Sector percentage in TC studies
With regards to the majority studies have been conducted in manufacturing sector, this has brought in some ideas saying that TCs studies are well known in the industries that heavily involved in the use of machinery equipments. The company’s business operation and production lines incorporate both human capitals with machines and equipments. TC is therefore, a critically imperative component of competitive advantage, which drives the performance of manufacturing companies [19, 54].
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the other hand, reconfiguration capability was believed to have a more positive impact on strategic performance than refinement capability, influencing a long-term improvement and superior strategic performance. The study also showed a positive association in which an organization with superior refinement capability tends to possess superior reconfiguration capability. Another study measured organization performance by realizing its growth and profit. The result showed that technological capabilities do have a significant and positive relationship with innovation-based growth and positive significant relationship with growth through internationalization [47].
customer perspectives which basically measures by the operational performance of on-time delivery and loyalty have not discussed in details. Coombs and Bierly III [19] measured the performance on six items, which are return on assets, return on equity, return on sales, market values, market value added, and economic value added. The result of the studies on 201 manufacturing companies showed that R&D spending is a poor measure of TC because it gives a strong negative correlation to the return on assets and return on sales. However, it increases the ability of firms to better understanding, interpreting, and applying external knowledge. Patents showed no significant relationship on most of the performance measures in the area of study, which are return on assets, return on equity, return on sales, and market value added. Even though the study is not a comprehensive analysis of all the constructs' measures, it provides an illustration that somehow the traditional measures of TC, which is the number of patents and the amount of R&D spending could give a misleading perception toward the organization performance measures.
Khan and Haleem [38] found that manufacturing cost and quality of final product have been measured to be affected by technology absorption capability and TC is a very important component for technology absorption process in the study of automobile component manufacturing. It has been proven that organizational performances are not affected by technological and people capability directly. However, organizational performance was affected directly by the manufacturing processes. TC plays as the predictor of the manufacturing processes together with the person's capability. Therefore, manufacturing processes, which encompass innovation, flexibility, and improvement, is strictly depended on technological and people capability. The effect of process technology towards quality, cost, speed, reliability, and flexibility of manufacturing operation has been mentioned briefly in a study on strategic implications of manufacturing performance in comparisons of newly industrializing countries [61]. The paper highlighted the importance of taking into consideration other environmental aspects as well as manufacturing long term strategies. Longer term strategies refer to the development of TC itself, as it aids to accumulate and develop the technology. They emphasized that the manufacturing strategy process should be in line with the longterm technology development strategy and not just for shortterm response or market needs.
Tsai [18] strongly supported that TC has a significantly positively correlation on firm performance. The capability is proven to play a significant determinant of productivity growth for high-tech firms. Technological knowledge seems to improve the TC and prolongs the exceptional performance in terms of productivity growth or value added. However, TC has a greater impact on productivity growth or value added compared to physical capital or labor due to the advantage of knowledge-base input factors in production. In addition, TC is measured in the perspective of stock instead of the flow of technology itself. TC is proved to have directly affected the performance of; overall business and new product development (NPD) [20]. The capability is not only has the direct effect, but also an indirect effect on both performances where the customer value plays as the mediator. Customer values itself for having a significant effect on overall business NPD performance and therefore, does mediate the effect on TC on both performances. However, the result on the effect of TC on environmental uncertainty and learning orientation is contingent, whereas the moderating effect on market turbulence negatively moderates the relationship between TC and the customer value as well as the relationship between TC and new product development performance, while the moderating effect of technological fluctuation marginally moderates only the relationship between TC and overall business performance, similarly to the learning orientation which shows a weak relationship and the effect of size, which is small but positive.
VI.
CONCLUSION AND FUTURE RECOMMENDATIONS
Developing and improving TC in an organization is a long-term commitment. The importance of technology strategy assessment itself had motivated scholars and practitioners to researched and assessed the theoretical and practicality of TC since decades ago until recent. The studies and assessment of TC have contributed to some point valuable intangible resources to any organization. Nevertheless, it must take the effort and commitment of every individual involves in the organization to realize the success. TC plays a very significant role that helps an organization to endure the dynamically changing market turbulence for a long period, from the beginning of new ventures until to the stage of firms with corporate social responsibility. For that reason, manufacturing companies ought to start evaluating their level of TC. For companies that have not yet been implementing any, they must consider having one now before any unwanted winding-up happened, while, companies, which are already implemented some TCs, they must upgrade the current TC to a higher level for them to improve the companies’ performance and satisfy customer needs.
Organization performance can also be measured by operational efficiency and strategic performance. The two classifications of TC that are used to investigate the relationship between the two capabilities and firm performance measures are refinement capability and reconfiguration capability [40]. The results of small firm case show a positive association between refinement capability and operational efficiency. Refinement capability was observed to have more positively related to the operational efficiency than reconfiguration capability, hence contributes primarily to shortterm improvement and superior operational performance. On
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Overall, most studies in TCs literatures have shown a momentous role played by TC on various organization performances, especially in terms of financially; accounting and market-based measures. As a result, TC is being labeled as a crucial determinant that promotes competitive advantage through firm performance growth. Nevertheless, studies on TC reflected the well known operational performance nonfinancially; cost, quality, delivery, flexibility, and innovation are still scarce. Future research on TC which thoroughly focuses on manufacturing performance measures are worthwhile since it will exclusively verify the operational part of firm performance. Finally, with the basic understanding of TC and its impact on performance, companies may develop suitable strategies to escalate the performance and, hopefully, improve competitiveness as well. Their commitment on TC will determine a long term victory for the company.
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ACKNOWLEDGEMENT The authors would like to thank two anonymous reviewers on a prior edition of this article who gave valuable comments and useful inputs, and gratefully acknowledge and thank Kementerian Pendidikan Malaysia for the financial support under MyBrain15 research scholarship programme and Universiti Utara Malaysia for the postgraduate support given.
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