Modeling Dynamic Capabilities and Corporate Entrepreneurship for Innovation Focused Growth Economies

Modeling Dynamic Capabilities and Corporate Entrepreneurship for innovation

focused growth economies

Ruta AidisSenior Fellow, George Mason University

Senior Researcher, Kaunas University of TechnologyAsta Pundziene, Vice Rector of Research, KTU

Solveiga Buoziute-Rafanaviciene, Assoc. Professor, KTU Monika Petraite, Dean, Social Science Faculty, KTU

Sigita Neverauskaite, PhD CandidateEvelina Meiliene, Head, Development Project Center

Center for Entrepreneurship and Public Policy (CEPP)

R. Aidis - RENT XXVII - Vilnius - 2013 2

Objectives

• Explore how entrepreneurship and dynamic capabilities have been quantified

• Identify the essential components • Introduce a model and framework

Goal: To create a quantitative measurement tool for dynamic capabilities and corporate entrepreneurship at the firm level


Outline

1. Introduction2. Quantifying Entrepreneurship for cross-

country comparison3. Quantifying Dynamic Capabilities for cross-

country comparison4. Assessment, Essential Components,

Framework and Model


I. Introduction

• no clear conceptual model for the interrelationships among dynamic capabilities, corporate entrepreneurship, innovation and economic growth.

• Some suggest that entrepreneurial activities are antecedents of dynamic capabilities (Lei-Yu 2007)

• Others identify dynamic capabilities as a moderating variable for developing innovations (Zahra, Sapienza and Davidsson 2006)


Our perspective

Dynamic capabilities (DC) = creating the conditions for the implementation of innovative practices as well as new knowledge and concept development through learning

Entrepreneurship = impetus to apply new knowledge and concepts through experimentation and institutionalization of innovations

• Within firms, dynamic capabilities are the foundations for corporate entrepreneurship

• Which creates a double loop for organizational learning.


Our working model

Economic growth

Tech and innovation based business

Corporate entrepreneurship

Dynamic capabilities

Antecedent Input Output Consequent

Growth in GDP, jobs, demand& supply

Innovation level: Innovations in model; product; services, investment in R&D etc.

Opportunity search; recognition; exploitation.

Analytical system; organizational settings for; Learning & knowledge management

Antecedent Co

nseq

uent

Learning loop

Back loop


2) Quantifying entrepreneurship: Suitable conditions

Institutions matter for entrepreneurship development

(Baumol, North, and others)


Quantifying Entrepreneurship: individuals

• Global Entrepreneurship Monitor (GEM)– Total Entrepreneurship Activity (TEA)– Entrepreneurial attitudes, activity and aspirations

• Global Entrepreneurship and Development Index (GEDI)- Institutional and Individual Variables combined- Penalty for Bottleneck methodology- Brings in data from the World Bank’s Ease of Doing business Index- World Economic Forum’s Global Competitiveness Index


Quantifying Entrepreneurship within firms: Corporate entrepreneurship

Entrepreneurial Employee Activity (EEA) – GEM• 54 countries in 2011• EEA characteristics

– Similar to TEA: skills, opportunity, fof, know entrepreneur

– Less exposed to financial risk– Access to additional resources

• EEA not very widespread – 5% of employees• Most prevalent in innovation driven economies


EEA in selected countriesCountry Entrepreneurial Employee

Activity (EEA)Total Entrepreneurship Activity (TEA)

Lithuania 3.4 11.3

Poland 2.3 9.0

Slovakia 2.7 14.2

Latvia 2.2 11.9

Denmark 9.2 4.6

Sweden 13.5 5.8

Finland 8.0 6.3

US 5.3 12.3

Germany 3.5 5.6


EEA explained

• Countries with high rates of EEA tend to– Highly educated employees– High level economic freedom– High level of social security– ‘perceived employer support’ – National cultural that supports job autonomy

• Supportive internal organizational culture• EEA is most prevalent in the private sector (2/3)

but also takes place in the public sector (1/3)


Conceptualizing DC:Teece et al (1997, 2007)

Adapting, integrating and reconfiguring internal and external organizational skills, resources and functional competences to match the requirements of the changing environment

Three stages of building DC:• Sensing• Seizing• Transforming


Conceptualizing DC

In terms of organizational learning (March 1991)

Exploring vs. Exploiting resources

Exploring: search, variation, risk-taking, experimentation, play, flexibility, discovery and innovation

Exploitation: refinement, choice, productions, efficiency, selection, implementation and execution

Are inter-related activities (Zollo & Winter 2002)


Quantifying Dynamic Capabilities 1• Deeds et al (1999) 94 biotech company IPOs – firm, environment,

quality of team

• Alvarez and Merino (2003) Savings and Loans institutions in Spain – firm & environment

• Lei-Yu Wei (2007) 200 Taiwanese high-tech firms - managing resources, ability to respond, cooperative teams

• MacInerney-May (2012) 265 business units from 179 large companies in Germany – knowledge & capabilityflexible/decentralized/formalization supports DC


Quantifying Dynamic Capabilities 2Alsos, Borch, Ljunggren and Madsen (2008)

Empirically test the validity of DC conceptualized as 4 types of activities: Internal Exploration/ ExploitationExternal Exploration/ Exploration

677 innovative firms in Norway

Renamed categories:1. External observation and evaluation2. External resource acquisition3. Internal resource reconfiguration4. Internal resource renewal

Dutch study (Leliveld & Smeitink, 2013)- 99 SMEs also found that age, education and international focus effects firm performance

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Entrepreneurship, Innovation and Dynamic Capabilities Model

“Transforming”

Institutional Environment

Macro-level factors

External Incentives

•Regulatory Environment

•R&D Environment

•Macro-Stability

“Seizing”

Managerial practices

Firm-level factors

Internal Incentives

•Resources

• Decentralization

•Strategic Alliances

•Capabilities

“Sensing”

Individual-level responses

Entrepreneurial action (EEA)

•Opportunity Recognition

•Willingness to fail

•Skill & Capabilities

•Developing & innovative activity

R. Aidis - RENT XXVII - Vilnius - 2013


Measurement dimensions

Transforming : Institutional Environment

• R&D expenditure• Globalization• Business Risk• Regulatory environment• Social Security • National culture (Hofstede)• National values (World

Values Survey)• Economic Freedom

Seizing: Organizational Culture• Decentralization• Flexibility• Formalization • Exporting/Globalization• Internal/External

Exploring/Exploitation

Sensing: Entrepreneurial Employee characteristics

• Opportunity Recognition• Skills• Willingness to Fail• Age• Education


Conclusions• Dynamic Capabilities are measurable• The overall institutional environment matters

and affects DC development which in turn affects corporate entrepreneurship

• Entrepreneurs and Entrepreneurial employees share many similar characteristics but may also be affected by different incentives


Further steps

• Identify firm sample• Pilot dynamic capabilities measurements• Model development/testing/refining