Resources
5. Consensus achievement
3.12 Conceptual Framework of Research
According to the literature review and related theories, such as resource-based view (RBV), competence-based view, and dynamic capability theory, the conceptual framework of the research is developed with the following explanations.
Freiling (2004) studied organizational competencies by applying the open- system theory to the approach of organizational competency development. Based on the open-system theory, organizations consist of major components, such as input, internal process transforming input to output delivered to external environment outside the organization, which will receive feedback from the external environment (Thippawan Lorsuwanrat, 2008: 58) and cause the organization to adapt or change internal components corresponding to the external environment like organizational environment. If an organization’s outputs are innovative outputs of the organization, organization’s inputs will be organizational resources, which are managed and transformed to innovative outputs delivered to external environment and interacting
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with external environments such as customer satisfaction, marketing recognition, and the feedback will be sent to the organization as an infinite cycle.
When the feedback from the external environment flows back to the organization, components of the organization will be affected by this feedback.
Factors receiving feedback based on the open system theory are input, such as organizational resources, and internal components, such as decisions of the management, etc. Inputs, such as organizational resources, are the key factor of innovativeness. If, considering from the resource-based view perspective, organizations having valuable and inimitable resources will have competitive advantages over its competitors. Competitive advantages derive from innovativeness of organization, such as marketing innovation (Ren, Xie and Krabbendam, 2010).
This represents the concrete relationship of organizational resources, organizational innovation and competitive advantages.
Several scholars have presented the relationship between organizational resources and innovation. For example, Lily and Ahmad, (2010) studied the result of organizational resources influencing product innovation of organizations and found that organizational resources are the major driver of product innovation. It can be concluded that organizational resources can help the organization to have the capacity to innovate if the organization owns good and quality resources (Schubert, 2010).
According to the resource-based view, there were studies on organizational resources and innovation. Organizational resources determine the organization’s capacity to innovate. From this perspective, organizational resources consist of tangible resources and intangible resources as shown in Figure 3.15. Both types of resources will be transformed to the capacity to innovate which affects competitive advantages (Prastacos et al, 2002).
Figure 3.15 Resources as Factors determining Firm’s Capacity to Innovate
Wang and Ahmed (2004) suggested that organizational resources alone cannot make organizations effective. Organizations must have skills and abilities in deploying resources for the highest benefits according to the organization’s needs.
This means organizational competencies. Mathien (2013) noted that the combination of organizational resources, operations, and organizational capabilities based on the organization’s strategies enable the business to have competitive advantages, which refers to the ability to create good innovation. Holcomb (2007) proposed that the resource-based view is rooted from four areas of arguments which are: 1) Organizations have different resources, 2) Organizational resources enable the organization to have competitive competency and efficiency when they are sufficient and difficult to imitate, 3) Competitive advantages and performances of an organization occur when organizational resources are integrated and used for creating values to the organization, 4) Competitive advantages will be sustainable when resources are applied to internal operations better than competitors and the application of those resources can also deliver value to customers, and in the meantime, those resources must be processed to protect against imitation from other organizations.
Firm’s capacity to innovate Financial Resources
Internal / External funds
Technical Resources
IT system
Engineering equipment
Intangible Resources
Human
Knowledge
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These four suggestions clarify that an organization’s resources can benefit an organization whenever effective management is met, so that organizational resources will be transformed to valuable outputs as expected by the firm. To support the suggestion stating that only resources cannot cause organizations to have competitive advantages over its competitors, the organization must have good resource management so that the organization can eventually obtain competitive advantages.
Zona (2009) suggested the synthesis of “Who-How-What” concept relating to innovation process, in which; “Who” refers to individuals making decisions, administering and managing for supporting the innovative process; “How” refers to the adoption of organizational resources through the creation of new ideas, problem solving, development and implementation for trading in order to make the organization’s innovation successful; “What” refers to determining what outcomes of innovative process are, such as types of innovation (management, technology), forms of innovation (product and service, process, and business model).
According to the perspective of Zona (2009), Table 3.5 illustrates the “Who- How-What” concept and it is summarized that only resources cannot cause organizations to have innovation and competitive advantages over competitions.
Organizations must have managerial competency which will transform organizational resources to innovativeness, causing the organization to have efficiency over its competitors. “Who” represents leadership recognized as a key innovator who decides to create innovation strategy for developing innovation. “How” represents the process of innovation, in which the resource utilization, idea generation will be developed to make use of resources for the innovation process. While, “What” represents an innovation outcome that is identified related to organization’s goals.
Table 3.5 Conceptual Framework of Organizational Innovation in a form of “Who- How-What”
Other than good resource management, the organization must have competency in adapting to changes of the organizational environment by adopting dynamic capabilities efficiently Teece (2007). Dynamic capabilities refer to the model of continuous and systematic learning and activities of the organization for creating and adapting the organization’s operation for efficiency at all times (Zollo and Winter 2002). With dynamic capabilities, the organization will reconsider organizational competencies in order to respond to external changes. The organization will transform organizational resources and develop competitive strategies through abilities in learning, and also integrate internal and external resources for responding to the changing external environment. To do this, the organization must have abilities in learning and adaptation for developing organizational competency in all aspects and eventually leading the organization to efficiency.
Organizations must develop organizational competency in all aspects so that the innovative process will be efficient and able to transform organizational resources to valuable outputs, leading to competitive advantages for the organization. Based on the competence-based view perspective, the organization will be more successful than other organizations when they can make use of organizational resources more efficiently and effectively than others (Freiling, 2004). Competence-based view perspective shows that, if organizations have resources that are more advantageous than its competitors but they are unable to make use of those resources efficiently, Organizational Innovation Framework
Leadership > Innovation Process > Innovation
who Leadership Decide and create strategy and recognized as key innovators
How Innovation Process Utilize resource, make idea, develop, make use What Innovation
Outcomes
Type of innovation is identified
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such an organization will not be able to develop competitive advantages over rivals.
This corresponds to the suggestion of Liao et al. (2009) who stated that, no matter how much valuable resources the organization has, it is not enough to acquire competitive advantages, but in contrast, competitive advantages occur from the organization’s capability in exploiting resources, improving resources and managing resources appropriately, including the organization’s capability in responding to the organizational environment effectively.
The term “competency” has different meanings based on various perspectives.
Mostly, competency is describes as having knowledge, abilities, skills and capabilities (Gliddon, 2006) that enable an organization to achieve its goal. Amabile (1988) stated that management skill, organization’s support in innovation, and resource support for innovation development can help the organization develop its own innovation. From the previous perspectives, it can be seen that organizational competency has several models and it can help an organization create innovation successfully. Sanchez (2004) stated organization competency can be categorized into five different modes as follows:
Competency Mode 1 refers to cognitive flexibility to imagine alternative strategic logics. It can identify the market needs and respond to such needs by creating strategies which encourages the organization to have a process of developing new products to fulfill market needs. In Competency Mode 1, the organization competency relates to know-what.
Competency Mode 2 refers to cognitive flexibility to imagine management processes relating to managerial competency of the organization in resource management (assets, knowledge and capabilities), which can be executed based on specified strategies through the appropriate control process and incentives in order to have a process that can create values. Top management will be responsible and supervise for innovative leadership and also design the efficient work of the organization, such as, task assignment and allocation, decision-making, exploitation of resources for applying organization strategies effectively. In addition, high-level executives have to understand behaviors of personnel in the organization. This mode of competency relates to the manager’s understanding of “know-why”. They have to
realize why organization strategies are applied and can create the value as outputs of the organization.
Competence Mode 3 refers to coordination flexibility to identify, configure and deploy resources of the organization. It is the duty of the management to provide sufficient resources to the organization and allow it to be accessed in a form of the resource chains which cause successful product development. For this competency, the management has to have the ability in determining processes and activities relating to resource deployment, including configuring models for the process of the organization influencing creation of new products.
Competence Mode 4 relates to the resource flexibility to be used in processes of the organization. The management has to have the capability in using resources for producing valuable products which are appropriate to each process of the organization.
Competence Mode 5 relates to the operating flexibility in applying skills and capabilities to available resources of the organization in each step of processes appropriately and creating products to meet the targeted markets correctly.
Figure 3.16 shows the details of five modes of competency in the form of relationships between each mode of competency which is elaborated in the perspective similar to the open system theory. It starts from the top where the organization realizes the needs of environment and decides to formulate strategies in order to determine the operational direction in the organization (Competence Mode 1).
The formulated strategies will lead to the internal process relating to the allocation and deployment of organizational resources (Competence Modes 2 and 3). Later, resources will be used in any processes within the organization (Competence Mode 4). Finally, they will be transformed to valuable outputs which attract the market and environment very well. (Competence Mode 5)
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Figure 3.16 Five Modes of Competency Source: Sanchez, 2004.
The Five Mode of Competencies is similar to the open system perspective which consists of input that will be delivered to the organization and transformed to outputs in the form of products responding and interacting with the organizational environment, and then feedback related to the outcomes will return to the organization as a cycle. Similarly, Lado et al. (1992) suggested organizational competency which consists of four main types of competencies: managerial competency, input-based competency (resources-based competency), transformation-based competency and output-based competency. These competencies will enable the organization to have sustainable competitive advantages. The relationships of such competencies is shown in Figure 3.6 as presented in section 3.10.
The Firm as an Open System Competence Mode Source of Competence Mode Portfolios of Strategic Options Created by Competence Modes STRATEGIC LOGIC
Operative rationale for achieving firm’s goals through coordinated deployments of
resources
Cognitive Flexibility of Strategic Managers to Define Alternative Strategic
Logics I
Strategic
Logic A Strategic Logic B Strategic
Logic C Strategic Logic N . . .
Portfolio of Perceived Opportunities to Create Value
MANAGEMENT PROCESSES Coordination mechanisms for acquiring and deploying resources
INTANGIBLE ASSETS Knowledge, intellectual property,
reputation, relationships INTANGIBLE ASSETS
Physical assets
OPERATIONS
PRODUCT OFFERS
PRODUCT MARKETS Data and
Revenues Decisions, Policies,
Procedures, Budgets II
III
IV
V
Data on Intangible
Assets
Data on Intangible
Assets
Data on Operation
Market Data, Revenues
FIRM-ADDRESSABLE RESOURCES
Cognitive Flexibility of Strategic Managers to Define Alternative Management Processes
Management
Processes A Management
Processes B Management
Processes C Management Processes N . . .
Cognitive Flexibility of Managers to Identify, Configure, and Deploy Chains of Resources
Resource Chain
A
Resource Chain
B
Resource Chain
C
Resource Chain . . . . N Resource Flexibility of Available Resources to be
Used in Alternative Operations Operations
A Operations . . . .
B Operations
C Operations
N Operating Flexibility in Applying Skills and
Capabilities in Uses of Available Resources
Product
Offer A Product Offer B Product
Offer C Product Offer N . . . .
Market Positions Achieved Through Firm’s Value-Creating Processes
Portfolio of Alternative Approaches to Managing Value Creation Process
Portfolio of Resource Chains Firm Can Acquire
or Access, Configure, and Deploy
Portfolio of Alternative Processes to Which Resource Chains Can Be Applied
Portfolio of Operationally Feasible Ways Firm Can Bring Product Offers to Markets
According to the resource-based view, dynamic capacity theory, competency- based view, and literature review in previous topics, the conceptual framework of research is developed as follows.
Figure 3.17 Conceptual Framework of Research
According to the study on organizational competencies in Section 3.9, managerial competency is important to the innovative competency of the organization.
Based on the perspective of Lado et al. (1992), the organization’s management is comparable to the center of the organization, it formulates strategies, plans action plans or performs any operations that affect other components of the organization, including managing the organization’s outputs as a form of products and services