Dynamics of Dynamic Capabilities - the Case of Public Broadcasting Päivi Maijanen* and Ari Jantunen LUT School of Business Lappeenranta University of Technology P.O. Box 20, 53851, Lappeenranta, Finland Email:
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[email protected] *Corresponding author
Abstract: Our study highlights the internal dynamics of strategic renewal by exploring the functioning of dynamic capabilities during strategic renewal in a public organisation facing rapid changes in its environments. The analysis focuses on how the organisation’s capacities to sense, seize, and reconfigure manifest themselves in the organisational context, and how they relate to each other. The empirical data was collected at the Finnish Broadcasting Company by means of a quantitative survey for all personnel. According to the results, the dynamic capabilities differ between the organisational sub-units, and the context affects the way they relate to change performance. In addition, the sensing capability seems to have an indirect effect on the organisation’s change performance, mediated by the seizing and reconfiguring capabilities. Our study conceptually and empirically contributes to the young tradition of applying the dynamic capability view in the context of public organisations.
Keywords: dynamic capabilities; strategic renewal; public broadcasting; change performance; sensing, seizing, reconfiguring capabilities; path-dependency
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1 Introduction
In this study, the dynamic capability view (DCV) is applied to explore the internal dynamics of organisational renewal. We will explore how different types of dynamic capabilities relate to each other and to their organisational context. Our case-organisation is the Finnish Broadcasting Company, which is facing multitude of challenges due to extensive changes in the media markets.
The Finnish Broadcasting Company offers an excellent case to explore an organisation’s internal dynamics during a strategic change process. Media convergence and digital technology are challenging the operating logic of broadcasting companies in a more radical way than maybe ever before. Because of drastic changes in the media competition, media technologies, and customer behaviour, the established public media institutions have been forced to rethink and refocus their underlying dominant logic(s) (Prahalad and Bettis, 1986; Bettis and Prahalad, 1995) and strategic goals. This, in turn, has resulted in changes to their resource bases, organisational processes, and capabilities in carrying out new strategies. The changes have been challenging for the rigid and hierarchical public broadcasting institutions that, for decades, have enjoyed a privileged position and prospered, with their established routines and assets based on the traditional content-broadcasting capabilities. However, the new, non-linear digital contentproducing way of operating has questioned the established ways of doing and directed the change towards more flexible, innovative, open, and interactive ways of producing content and meeting the needs of individual customers. All these developments are now challenging public media companies’ capacity for constant learning and renewal. (On challenges of public broadcasting, see e.g. Nissen, 2006; Bardoel and Lowe, 2007; Bardoel and d’Haenens, 2008; Leppänen et al., 2010; Lowe, 2010; Lowe and Steemers, 2012; Nissen, 2013).
As recent strategic management studies show, strategic renewal can be viewed as a complex and multidimensional process that encompasses both cognitive and organisational capabilities. The ways organisations think and behave are tightly connected and intertwined with these pathdependent capabilities, not only at the managerial level, but in whole organisations (Agarwal and Helfat, 2009; see studies on organisational renewal, e.g. Barr et al., 1992; Tripsas and Gavetti, 2000; Kaplan, 2008; Eggers and Kaplan, 2009; Laamanen and Wallin, 2009; Tripsas,
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2009). In this study, we will focus on the functioning of the organisational capabilities by applying the DCV. Since the DCV is still a young emerging research tradition, it has not yet been able to create an established and unanimous theoretical basis. As many reviews on different dynamic capability-related studies show, there are many different definitions, and sometimes even contradictory views and understandings of the nature and purpose of dynamic capabilities (e.g. Ambrosini and Bowman, 2009; Easterby-Smith et al., 2009; Helfat and Peteraf, 2009; Barreto, 2010; Di Stefano et al., 2010; Peteraf et al., 2013; Vogel and Güttel, 2013; Eriksson, 2014). Nevertheless, despite the variety of orientations, it seems to be clear that there is quite a general agreement upon dynamic capabilities being “of inherent strategic relevance to a firm” (Vogel and Güttel, 2013, p. 426) in enhancing firms’ and other organisations’ capacities to cope with rapidly changing environments.
From the variety of definitions and interpretations of dynamic capabilities, we will follow the seminal definition launched by Teece et al. (1990, 1997) and the operationalised version by Teece (2007), which opens up the micro-foundations of the DCV. According to this version, dynamic capabilities consist of three fundamental categories, which are the sensing, seizing, and reconfiguring capacities of dynamic capabilities. According to Vogel and Güttel’s (2013) bibliometric analysis of different research traditions and trends within the DCV, the Teecean tradition used here represents “the identity building core cluster” (p. 439), whose focus is on “strategic learning and change”. This learning perspective emphasises firms’ ability to modify and transform their resource base as an important explainer of firms’ performance.
Our empirical analysis is based on a large survey at the Finnish Broadcasting Company in the autumn of 2011. The survey was done when the implementation of a vast strategic and organisational reform had just been started within the company. It is worth keeping in mind that the survey was carried out for all the personnel. We will not explore dynamic capabilities only at the managerial level, as very often is the case in the studies applying the DCV. Here, we will look at the whole organisation, because we are tempted to think that an organisation can be successful only when the changes and organisational learning encompass the whole organisation and involve all the people in it. One of our main research questions deals with the context-bound nature of the capabilities. To put it more concretely: we are concerned with how the dynamic capabilities relate to the
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organisational structure of our case-organisation, by analysing whether the dynamic capabilities differ between organisational sub-units. In addition, we will explore how the different types of dynamic capabilities relate to each other, by analysing their interaction and mediation effects. Furthermore, we will study how the dynamic capabilities add to the change performance within the company. It is worth pointing out that, because we are concentrating on the internal change dynamics, we will not explore how dynamic capabilities contribute to the competitive advantage of the company analysed in comparison to other media companies. The change performance we are concerned with is how the dynamic capabilities enhance the organisation’s capacity to change (change performance), by which we mean the organisation’s capacity to learn and cope with changes.
The paper is structured in the following way. Section 2 first introduces the theoretical assumptions and concepts used in this paper, and then launches our conceptual model and the hypotheses based on it. Section presents the data collected, the variables used in the analyses, and the results of the empirical analyses. Section 4 concludes the paper.
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Theoretical foundations, main hypotheses, and conceptual model used
2.1
Dynamic capabilities in the context of public organisations
The DCV has been traditionally applied in the context of private companies, with the research question of how a firm obtains and sustains its competitive advantage in the changing business environment (Teece et al. 1997; Helfat et al., 2007; Teece, 2007, 2012). However, in recent years, the public context has also gradually raised interest among scholars, and DCV-based studies done in public health care, public schools, and so on seem to support the presumption that this approach is fruitful for advancing the research on public organisations as well (e.g. Ridder et al., 2005; Pablo et al., 2007; Klarner et al., 2008; Harvey et al., 2010; Piening, 2011, 2013). Reasons for this move can be traced to the drastic changes in the operating environments of public organisations. Hence, the capacity to renew the ways of thinking and doing is becoming as relevant for public organisations as for private firms (Klein et al., 2010, 2013; Walshe et al., 2010; Piening, 2013). This phenomenon also describes well the situation that public broadcasting companies are going through at the moment.
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The use of the DCV in the context of public organisations can also be justified by the approach itself. The DCV is interested in the internal domain of the organisation, meaning the organisational resources, routines, and capabilities that enable the pursuit of better performance. These organisational elements exist in all kinds of organisations with the same logic, whether private or public (Pablo et al., 2007; Klein et al., 2013; Piening, 2013). As Helfat et al. (2007, p. 6) put it: “Both types of organisations have resource bases and both may face or initiate change”.
On the other hand, despite general organisational similarities, public organisations and private enterprises do fundamentally differ from each other, and these differences unavoidably affect their ways of coping with changes and renewing themselves. Traditionally, the differences can be determined in terms of three dimensions: ownership, funding, and control (Bozeman, 1987; Boyne, 2002; Piening, 2013). The level of publicness tends to correlate with the organisation’s level of rigidity, as Piening (2013, p. 235) proposes: “The higher the degree of publicness, the less likely are public organisations to develop and deploy dynamic capabilities.”
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fundamental cause for this lies in the external political control; the dependency on political stakeholders’ goal-setting, expectations, and support tends to reduce managers’ autonomy and their willingness to commit to far-reaching strategic changes and innovative search activities (Fernandez and Rainey, 2006; Salge, 2011; Piening, 2013). Nevertheless, due to the frequent changes in the political scene, the public sector is “facing even more environmental change than private sector firms” (Piening, 2011, p. 131), and therefore dynamic capabilities can be an important success factor for public organisations to meet these pressures (Bryson et al., 2007; Pablo et al., 2007; Piening, 2013; Salge and Vera, 2013).
In light of the inherent path-dependent characteristics of public organisations, we will argue that dynamic capabilities are needed to reduce organisational rigidity and to enhance their capacity for learning and innovation in addressing the changing demands and pressures arising from the operational environment. The few studies on dynamic capabilities within the public sector indicate that the successful deployment of dynamic capabilities in public organisations is based on incremental organisational learning (Zollo and Winter, 2002), meaning learning by doing, experimenting, and predominantly implementing the innovations of others rather than
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investing in making one’s own innovations (e.g. Pablo et al., 2007; Piening, 2011, 2013; Salge and Vera, 2013).
2.2
The capacities of sensing, seizing, and reconfiguring
Dynamic capabilities enable organisations to respond to the need for strategic renewal in the pursuit of long-term success in the changing environment. They facilitate organisational learning and enable organisations to overcome the resource-gap between the present and desired resource base (Teece et al., 1997; Helfat et al., 2007; Teece, 2012). Most of the many DCV definitions are based on the seminal definition of Teece et al. (1997), which defines the dynamic capability as “the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (see e.g. Zollo and Winter, 2002; Helfat and Peteraf, 2003; Zahra et al., 2006; Helfat et al., 2007; Easterby-Smith et al., 2009). In general, dynamic capabilities can be defined as higher-order capabilities that reconfigure and transform the lower-level operating routines and capabilities (Zollo and Winter, 2002; Winter, 2003; Ambrosini et al., 2009; Helfat and Winter, 2011; Pavlou and El Sawy, 2011; Salvato and Rerup, 2011).
This study applies Teece’s (2007, p. 1319) newer dynamic capabilities framework, which distinguishes three fundamental capacities:
“For analytical purposes, dynamic capabilities can be disaggregated into the capacity (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets.”
The sensing capacity (or capability) refers to the ability to sense and identify opportunities and threats in the environment by applying “scanning, creation, learning, and interpretive” activities (Teece, 2007, p. 1322). Organisations must be constantly alert to weak signals as signs of future developments and opportunities (new technologies, target segments, changing customer needs, new innovations, etc.). The sensing capacity inherently encompasses the cognitive dimension
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of the dynamic capabilities, and especially the dynamic managerial capabilities (Adner and Helfat, 2003; Teece, 2012; Kor and Mesko, 2013; Helfat and Peteraf, 2014; see also Hodgkinson and Healey, 2011), because the initiation of fundamental changes is mainly dependent on managers’ capabilities to sense, pay attention to, and interpret new opportunities or strategic options (Teece et al., 1997; Helfat et al., 2007; Teece, 2007; Kyläheiko et al., 2008; Ambrosini and Bowman, 2009; Augier and Teece, 2009; Helfat and Peteraf, 2014).
The seizing capacity refers to the capability to seize the sensed opportunities, to take action, and to invest in order to make the renewal process go forward towards the desired goal. The seizing capacity is underpinned by such activities as making organisational innovations, selecting business models and product architectures, and investing in appropriate technologies. It also refers to the capacity to design such decision-making procedures and organisational structures that enhance decision-making and combat the cognitive and structural pathdependencies underlying the decision-making activities (Teece, 2007, 2012; Helfat and Peteraf, 2009).
The reconfiguring capacity is underpinned by patterned activities that enable the combining and recombining, renewing and orchestrating of tangible and intangible resources – assets, routines, and capabilities – in order to sustain the organisation’s evolutionary fitness (Helfat et al., 2007; Teece, 2007). It is also about learning new skills, developing and adopting new processes and organisational structures, and effectively applying knowledge management activities (e.g. knowledge sharing within the organisation). (More about this, see Teece et al., 1997; Eisenhardt and Martin, 2000; Zollo and Winter, 2002; Zahra et al., 2006; Helfat et al., 2007; Barreto, 2010; Basu, 2013; Stadler et al., 2013.)
It is worth noting that especially knowledge-related activities play an important role in the organisational learning process – starting from the sensing and interpreting of new pieces of knowledge and then assimilating them innovatively with the existing knowledge base into new services, products, processes, and capabilities (= seizing and reconfiguring). In this context the knowledge processing is closely related to an organisation’s absorptive capacity (Cohen and Levinthal, 1990; Zahra and George, 2002; Jantunen, 2005; Harvey et al., 2010; Salmi and Torkkeli, 2010).
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2.3
Dynamic capabilities and organisational context
According to the DCV, the dynamic capabilities are developed and deployed path-dependently, because the patterned activities that underpin the capabilities are based on accumulation of past resources, routines and experiences, which act as archives of organisational memory (Nelson and Winter, 1982; Teece et al., 1997; Pierce et al., 2002; Wang and Ahmed, 2007; Ambrosini and Bowman, 2009). The collective memory and paths direct and constrain organisational learning by limiting the possible strategic options for the future. Dynamic capabilities are not only path-dependent and context-dependent, but also organisation-specific: the context within which organisations utilize dynamic capabilities matters, and partly determines how well they function and evolve further. As Helfat et al. (2007, p. 7) state:
“Dynamic capabilities not only have generic attributes, but also become tailored to the settings in which they function, including different industries, technologies, functional areas, and organizations.”
In this paper, we will go a bit further, following the behaviouralist tradition of Cyert and March (1963). We consider large organisations – as public organisations often are – to be complex and multistructured, consisting of different sub-units with their own path-dependencies and rigidities. These sub-units can be regarded as independent areas with their own sub-goals, functions, assets, routines, and capabilities. Each sub-unit forms its specific micro-context, upon which the dynamic capabilities are built when sub-units are pursuing their desired goals. To sum up, it is not only the organisations that differ in their dynamic capabilities. The organisations’ sub-units, with their own paths, cultures, and functions, also differ in their capacity to sense the environment, to seize the opportunities, and to reconfigure intangible and tangible organisational assets. This brings us to our first hypothesis: H 1: The sensing, seizing, and reconfiguring capacities of the dynamic capabilities differ between the sub-units.
2.4
Sensing, seizing, reconfiguring and performance
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According to Teece (2007, p. 1341), all three capacities of dynamic capabilities are necessary in
bringing
success:
“The
enterprise
will
need
sensing,
seizing,
and
transformational/reconfiguring capabilities to be simultaneously developed and applied for it to build and maintain competitive advantage.” Each of them has to be taken into consideration when measuring the effect of dynamic capabilities on performance (also Barreto, 2010). The DCV relates the functioning of dynamic capabilities to organisational learning (Teece et al., 1997; Pierce et al., 2002; Zollo and Winter, 2002). The patterned activities underpinning dynamic capabilities aim at absorbing and integrating important new knowledge innovatively with the existing knowledge and resource-base. In another words, learning is the foundation of organisational change capacity (change performance), which in turn adds to the overall performance. This brings us to our second hypothesis:
H 2: The sensing, seizing, and reconfiguring capacities of the dynamic capabilities relate positively to the perceived change performance of the work unit.
In the model of Teece (2007), the sensing, seizing, and reconfiguring capacities are connected to each other following a certain order and logic (Helfat and Peteraf, 2009). Sensing gives the direction for strategic action. Once the strategic options have been sensed, they have to be seized to make things really happen. This again can be done only by renewing the operationallevel capabilities, that is, the routines and resources underlying them. This interrelatedness can be found directly or indirectly in several definitions of the dynamic capabilities (e.g. Barreto 2010, p. 271).
In our view, the capacities can be seen as interconnected in pairs. The sensing and seizing capacities are closely interrelated, because the strategic options have to be exercised by means of new services, products, processes, business models, and so on to be successful. On the other hand, the decision-making, seizing, is, as Barreto (2010, p. 271) notes, “relevant only if the organization also has the propensity to sense opportunities and threats”. Importantly, good sensing mechanisms enhance the cognitive capabilities of managers to overcome pathdependencies and biases in their decision-making (Teece, 2007; Harvey et al., 2010). The
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sensing and seizing capacities seem to support each other, and their interaction can be expected to have a positive cross-effect on change performance.
The seizing and reconfiguring capacities can also be presumed to have a positive synergy on (change) performance: to be able to transform the resource base the organisation or the sub-unit must make the seizing decision first. According to Teece (2007), effective decision-making practices (e.g. decentralized flat structures) enhance reconfiguration activities.
The sensing and reconfiguring capacities can also be regarded as interconnected. In Teece’s (2007) definition, the reconfiguring capacity is directly connected with performance, and, consequently, through performance it is linked with the sensing capacity. Failures have to be first sensed and interpreted in order to make corrective decisions. One can also presume that alertness and active sensing direct and refocus already existing reconfiguring activities to work in the right skill and knowledge areas (Harvey et al., 2010; also Barreto, 2010). This brings us to the following hypotheses:
H 3a: The interaction of the sensing and seizing capacities of the dynamic capabilities relates positively to the perceived change performance of the work unit. H 3b: The interaction of the seizing and reconfiguring capacities of the dynamic capabilities relates positively to the perceived change performance of the work unit. H 3c: The interaction of the sensing and reconfiguring capacities of the dynamic capabilities relates positively to the perceived change performance of the work unit.
Furthermore, we presume that the effect of the sensing capability on the perceived change performance differs from the effect of the seizing and reconfiguring capabilities. We think that the effect of the sensing capability on change performance is mediated by the seizing and reconfiguring capabilities. This can be based on the role the sensing capability has in the “chain” of sensing, seizing, and reconfiguring capabilities (Teece, 2007; Helfat and Peteraf, 2009). They follow each other in a sequence, in which sensing conditions the activities of the seizing capabilities, which in turn condition the reconfiguration and recombination (orchestration) activities. Sensing brings in information from outside, but nothing happens within the
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organisation unless the seizing and reconfiguring capabilities turn sensed information into new strategic assets (Teece, 2007; Helfat and Peteraf, 2009; Barreto, 2010). In this action flow, sensing gives the fuel to the other two capabilities, which in turn refine it into strategic assets. Hence, the sensing capabilities mainly have an indirect impact through the seizing and reconfiguring capabilities. This brings us to our final hypotheses:
H 4a: The effect of the sensing capability on the perceived performance of the work unit is mediated by the seizing capability. H 4b: The effect of the sensing capability on the perceived performance of the work unit is mediated by the reconfiguring capability. 2.5
Conceptual model used
Figure 1 presents the conceptual model of our analysis, illustrating how the sensing, seizing, and reconfiguring capabilities relate to the organisational context – its structure, strategy and change performance – during the strategic change process. Due to the context-dependencies, the dynamic capabilities can be expected to differ between the sub-units. In addition, the sensing, seizing, and reconfiguring capabilities are expected to affect change performance positively. Dynamic capabilities are assumed to be interrelated with each other, and the interaction of the capabilities can be expected to have an extra synergy effect on change performance. Finally, we assume that the sensing capabilities’ impact on performance is mediated through the seizing and reconfiguring capabilities.
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Sub-unit B
Sensing
Seizing
Reconfiguring
Sub-unit C
Sub-unit D
Perceived change performance
Strategy and strategic actions
Sub-unit A
Dynamic capabilities
Figure 1: The model illustrating dynamic capabilities in relation to the organisational context
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Empirical analysis and main results
3.1
Data collection
The empirical data of our analysis is based on a quantitative survey carried out for all the personnel at the Finnish Broadcasting Company (n=3,496) using the Webropol 2 software. The response rate was 39.4 percent (1 397 employees answered).
The survey was conducted in October-November 2011 – ten months after the implementation of a strategic reform started in practice. With the new strategy and organisational reform, the company sought to sustain competitiveness in the domain of digital content production, and to achieve more flexibility and efficiency. One of the main effects of the reform was the establishment of six sub-units with their underlying functions and tasks: the Media unit (the general planning, coordination, and profiling of the channels on all platforms); three content units: Current Affairs and News, Creative Content (content in the domains of culture, entertainment, drama, etc.), and Swedish Yle (all Swedish language content); the Operations unit (responsible for larger programme productions and technological infrastructure); and the 12
Joint Operations unit (a matrix unit for coordination of the company’s own resources, e. g. HR, Financial Affairs, Strategy).
In the survey, respondents were asked to evaluate the sensing, seizing, and reconfiguring capacities and the change performance of their own work units. They were also asked to evaluate their attitudes towards change, work motivations, threats, and so on. Demographic variables such as age, gender, work experience, organisational level, and sub-unit membership were applied. The quantitative analysis was made using multivariate analysis methods, using SAS EG 4.2.
3.2
Variables of the analysis
In this study, the sub-units were regarded as aggregates of the work units striving for the subunit-level targets and goals. Hence, the dynamic capabilities and the change performance measured on the level of work units can be analysed in the context of the sub-units. The sensing, seizing, and reconfiguring capabilities were measured by the respondents’ evaluations of the patterned activities underlying the different dynamic capabilities in the work unit. The evaluations were done on Likert scale 1–5 (1=totally disagree; 5=totally agree). As shown in Table 1, the items measuring the variables Sensing, Seizing and Reconfiguring are related to activities that enhance organisational learning and, consequently, change in terms of sensing the environment, making rapid decisions, and being able to share knowledge and learn new things.
The effect of the dynamic capabilities on the learning capacity is measured by means of the respondents’ evaluations of how well their work unit has coped with the recent reforms (the variable Perceived change performance). The evaluation was done on the Finnish school grade scale from 4 to 10 (with 4 meaning “fail” and 10 meaning “excellent”). The interactions between sensing and seizing, seizing and reconfiguring, and reconfiguring and sensing were constructed by multiplying the standardized values of the variables (sensing, seizing, and reconfiguring). The standardization was applied to avoid muticollinearity in the regression analysis. The six sub-units – Media, News and Current Affairs, Creative Content, Swedish Yle, Operations, Joint Operations – were used as demographic variables in our analysis.
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Table 1: The variables of the analysis Variable
Construction of the variable
Measuring items
Sensing
Composite measure of 4 items measuring the sensing capability in the work unit (Likert scale 1-5;1= totally disagree; 5= totally agree)
1. 2.
Composite measure of 3 items measuring the seizing capability in the work unit (Likert scale 1-5;1= totally disagree; 5= totally agree)
1.
Seizing
3. 4.
2. 3.
Reconfiguring
Composite measure of 3 items measuring the reconfiguring capability in the work unit (Likert scale 1-5;1= totally disagree; 5= totally agree)
1. 2.
3. Perceived change performance of the work unit
One item measuring the change using the the Finnish school grading scale of 4 to 10 (with 4 meaning “fail” and 10 meaning “excellent”)
1.
In my work unit, we actively scan other media. In my work unit, we do not respond to customer feedback enough (reversed scale). We are actively in contact with different stakeholders. In my work unit, we actively follow changes in audience and customer behavior and needs. In my work unit, the customer feedback and audience research are taken into account in the development work. In my work unit, the changes agreed upon are carried out and not left unfinished. In my work unit, we are capable of making fast decisions and changes in work practices when needed. Sharing knowledge and learning new things is a typical way of working in my work unit. In my work unit, the professional skills and expertise of personnel are developed through specifically targeted training. My work is slow to adopt news skills and working methods (reversed scale). Evaluate your work unit’s performance, considering the recent reforms, using the Finnish school grading scale of 4 to 10.
Table 2 shows Cronbach’s Alpha coefficients of the sum variables. The coefficients indicate them to be consistent (Nunnally, 1978).
Table 2: Cronbach’s Alpha of the sum variables Sum variable
Cronbach’s Alpha
Sensing Seizing Reconfiguring
0.68 0.70 0.69
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Table 3 below shows the descriptive statistics of the variables of the analysis. Pearson’s correlation coefficients of the sum variables are presented in Table 4.
Table 3: Descriptive statistics of the variables Variable
N
Mean
Std Dev
Sensing
1365
3.361
0.776
Seizing
1364
3.345
0.870
Reconfiguring
1368
3.213
0.884
Perceived change performance of work unit
1364
7.752
1.217
Table 4 Pearson’s correlation coefficients of the variables Sensing
Seizing
Reconfiguring
Sensing
1.000
Seizing
0.583*** 0.424***
1.000 0.647***
1.000
0.367***
0.551***
0.496***
Reconfiguring Perceived change perform. of work unit
Perceived change perform.
1.000
Note:***
