Leveraging Resources For Strategic Organizational Renewal A Co-Evolutionary Perspective

Abstract

Multiple strategic discontinuities of the constantly changing business environment are driving organizations, both large and small to seek new ways of conducting business to create wealth. The only way organizations can cope with these strategic discontinuities, in their pursuit of strategic self-renewal, is to develop and maintain strategic flexibility whereby new sources of wealth can be created through new combinations of resources. It is through such a strategic flexibility that any organization can endeavor to achieve a dynamic fit between the organization and its environment. Dynamic capabilities and their proxies are the means by which organizations can explore and exploit various resource configurations across different possible functional, cross-functional and cross-unit activities and thereby nurture their strategic flexibility in achieving this objective of strategic self-renewal, on a sustained basis. A critical literature review pertaining to resources, dynamic capabilities, competences and strategic renewal has pointed to a dearth of holistic quantitative studies of strategic renewal from a dynamic contingency perspective or a coevolutionary perspective, particularly in the Indian context. There has not been adequate literature in striking a blend of dynamic capabilities and their proxies in terms of a judicious mix of inside-out and outside-in approaches to strategy. The empirical and conceptual gaps in literature have provided us the impetus to take upon this study. On the conceptual front, there has not been any theoretical model of integrated resource leverage that links dynamic capabilities and their proxies, in the context of strategic renewal of organizations. On the empirical front, studies on dynamic capabilities till date have been predominantly qualitative anecdotal or episodic in nature and hence firm-specific or industry-specific in their outlook. It is imperative to synthesize the conceptual debates and the diverse empirical findings towards a more integrated understanding of resources and dynamic capabilities in the context of strategic self-renewal of organizations. The present study attempts to bridge these research gaps, first by developing a conceptual model and then testing it for subsequent statistical validation. It endeavors to understand the dynamics between different resource leverages and strategic renewal initiatives and their impact on organizational performance, on the dual fronts of market performance and financial performance. It also proposes a definitional framework encompassing the hierarchy of concepts viz., resources, dynamic capabilities and dynamic competences, whose definitions from the extant literature were duly synthesized for a greater and cohesive understanding of these concepts. The objectives of the current study were: •To compare and contrast the extent of implementation of various resource leverage practices and strategic renewal initiatives in different organizations of varying age, size and ownership. •To study the dynamic interactions between various resource leverages and strategic renewal initiatives and their impact on organizational performance. •To make appropriate suggestions for enhanced leverage of resources for augmented prospects of strategic renewal of organizations. A conceptual model was developed based on support from literature and a preliminary study. The model comprises several path links (hypotheses), each of which connects two variables (constructs with pertinent indicators) and their directionality. Besides establishing rationale for each of the hypotheses, the constructs were operationalized based on an existing survey instrument (Volberda, 1998) and other allied literature. All in all, a set of 38 hypotheses was identified and formulated for the current study and has been tested using Variance-Based Structural Equation Modeling (VBSEM). The conceptual model links three major aspects viz., strategic renewal initiatives, resource leverages and organizational performance. The resource leverages are the result of constant application and development of dynamic capabilities of an organization while the strategic renewal initiatives, by and large act as proxies of these dynamic capabilities. On one hand, the model focuses on different strategic renewal initiatives that tend to jack up the absorptive capacity of an organization from time to time, with critical inputs of information from the multiple perspectives of customers, employees, competitors and business environment in general. On the other hand, it encompasses multitudinous resource leverage practices that explore and exploit different resource configurations across various possible functional, cross-functional and cross-unit activities by virtue of dynamic capabilities. Thus, a blend of inside-out and outside-in approaches to strategy is captured in this model. Based on a critical literature review and a preliminary study entailing in-depth interviews with strategy experts and a pilot study, two complementary questionnaires were developed. The first questionnaire encompasses various resource leverage practices in terms of a firm’s dynamic capabilities, and it also includes measures of organizational performance while the second questionnaire entails strategic renewal initiatives in terms of proxies of dynamic capabilities. The first questionnaire was personally administered to the CEO while the second one to a senior level manager in each organization and their responses were garnered. The sample covered 80 multi-unit organizations (80 matched pairs of respondent executives). The first phase of data analysis comprised of computation of means and standard deviations and statistical tests of comparison for each item. Kruskal-Wallis test was used for each item, across different groups of organizations, based on age-wise, size-wise and ownership-wise modes of classification. Based on the results, i.e., wherever the results rejected the null hypothesis of the foregoing Kruskal-Wallis test, subsequently, multiple testing procedure entailing pair-wise t-tests (with Bonferroni p-value adjustment method) was adopted to further explore differences, if any, between different pairs of groups. Based on the statistical significance of these tests, conclusions were drawn as to whether nature of ownership, age and size of organizations can explain the variations in resource leverage practices, strategic renewal initiatives and firm performance across organizations. Next, the survey data were analyzed at an aggregate level to test the hypothesized conceptual model by means of a multivariate technique viz., Variance-Based Structural Equation Modeling (VBSEM). Our rationale for choosing VBSEM stems from various soft prerequisites of VBSEM such as minimal sample requirements, scope for flexible interplay of data and theory, least distributional assumptions (nonparametric approach), model complexity, theory-building and scope for accommodating both latent and emergent constructs in the model. In accordance with the recommendations of Falk and Miller (1992), model trimming was carried out based on widely accepted threshold values for loadings (for reflective indicators), path coefficients and Rvalues for endogenous constructs. In addition to this, formative indicators (at the outer model level) and exogenous constructs (independent LVs at the inner model level) were handled by duly checking for multicollinearity, using a holistic approach similar to forward stepwise regression proposed by A.Koutsoyuannis (1977) and which is a revised version of the Frisch’s Confluence Analysis. After obtaining PLS estimates for all the parameters, bootstrapping for 1000 resamples was carried out to obtain stable estimates for all these parameters of PLS. Thus, bootstrap estimates were found for all the parameters of PLS viz., weights for the formative indicators and loadings for the reflective indicators in the measurement model; and path coefficients in the structural model. Pertinent F-tests were used both for Rvalues and their respective effect sizes (f values) to test their statistical significance. Direct and indirect effects of exogenous variables on the endogenous variables in the structural model were computed. Besides these, Tenenhaus’ goodness-of-fit index for the overall model was computed and this was found to be adequate, given the complexity of the model. Concomitant to the foregoing quantitative analyses, three detailed case studies in manufacturing, service and process industries, one in each of these industries, were undertaken for the purpose of triangulation. All the three case studies were carried out and analyzed on a common theme viz., dynamic interactions between different resource leverages and strategic renewal initiatives and their impact on organizational performance. These case studies also represent three categories of ownership (one listed organization, one closely held organization and one Indian multinational) and three different age groups, and thereby provide sufficient contrast in contexts. Major conclusions of the study pointed to unexplored or under-explored or under-exploited resource leverage practices and strategic renewal initiatives in the Indian context. Some of the major ones include leverage of strategic alliances, leverage of IT, leverage of Product-Market Combinations (PMCs), modularity orientation in product design, inter-industry benchmarks, resource accumulation and resource conservation strategies in general. Based on these conclusions, appropriate suggestions were made. Major suggestions to organizations include exploration of new business opportunities via strategic alliances, exploration of white space opportunities via technological boundary-spanning activities, exploration of alternative business models in different product markets, augmentation of IT integration with business processes, enhancement of collective learning via cross-functional and cross-unit activities via practices such as job rotation and proper management of knowledge portals and increased encouragement to employees (particularly technological gatekeepers and entrepreneurial boundary-spanners) in all brainstorming sessions for generation of New Product Development (NPD) ideas. Major empirical contributions of this study include establishment of significance of different strategic variables in the Indian context, assessment of the dynamic interactions between various resource leverages and strategic renewal initiatives and their impact on organizational performance on the dual fronts of market performance and financial performance. Major conceptual contributions of this study comprise refinement, integration and operationalization of theoretical concepts drawn from the diverse yet complementary sources of literature such as resources, dynamic capabilities, competences and strategic renewal from a dynamic contingency perspective or a co-evolutionary perspective concomitant to development of a comprehensive model of integrated resource leverage via dynamic capabilities and their proxies for strategic self-renewal of multi-unit organizations Directions to future researchers include longitudinal studies for greater insights of causality in the model with feedback effects, empirical studies with multiple respondents per organization, inclusion of objective measures of performance or / and industry-specific studies with a larger sample size for gaining an enhanced understanding of resource leverage practices for strategic organizational renewal.