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Capability, Knowledge, and Innovation:
Strategies for Capability
Development and Performance
by
C. Annique
Un
WP#4141
October 2000
C.
Annique Un, 2000
Massachusetts Institute of Technology, Sloan School of Management, 50 Memorial Drive, E52-509,
Cambridge,
MA 02142. e-mail:
cau@mit.edu
The paper is derived from my thesis at the Sloan School of Management, Massachusetts Institute of
Technology. The MIT-Japan Program Starr Foundation, the CS Holding Fellowship in International Business, and
would like to
the Massachussets Institute of Technology Doctoral Fellowship provided funding for this study.
participants
at
comments
of
with
me.
The
thank the managers of the companies studied for sharing their experiences
Technology
Institute
of
Massachusetts
the
Meeting
in
Toronto,
and
Management
Annual
the Academy of
1
am also grateful to Eleanor Westney, Michael Beer, John Carroll, Deborah
Proseminar helped improve the paper.
Ancona, and Alvaro Cuervo-Cazurra for their comments and suggestions. All errors remain mine.
I
CAPABILITY, KNOWLEDGE, AND INNOVATION:
STRATEGIES FOR CAPABILITY DEVELOPMENT AND PERFORMANCE
Abstract
This paper analyzes the strategies that companies use to develop the capability to
mobilize knowledge and create
sample
studies.
The
results
show
"project team", and "mixed".
"mixed" strategy
is
new knowledge
that
companies follow one of three
Though more companies follow
and large
strategies: "organization",
the "project
team"
strategy, the
associated with higher performance in terms of the capability developed and
financial performance, followed by the "project
Key words:
for innovation using both inductive
Capability,
team" and the "organization"
Knowledge Mobilization, Knowledge
strategies. [76]
Creation, Irmovation, Performance
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
JAN
3 2001
LIBRARIES
INTRODUCTION
The
capability to mobilize
for competitive advantage, but
we
knowledge and create new knowledge
still
do not know how
to
develop
for innovation
is critical
This capability has been
it.
discussed as "integrative capability" (Lawrence and Lorsch, 1967), "core competence" (Prahalad
and
Hamel,
"combinative capability" (Kogut
1990),
capability" (Teece, Pisano, and Shuen,
and
1992),
1997). and these authors considered
knowledge
and
new knowledge
create
understanding of "how" companies develop
indicate:
Zander,
it
"dynamic
as key
for
However, despite the extensive debate about the value of firms' capability
competition.
mobilize
and
"The question of
intentionality
it.
becomes
As
for
innovation,
there
Foss. Knudsen, and
particularly salient
is
still
to
limited
Montgomery (1995)
when
considering
how
a
firm sets out to build a given set of capabilities. Because resources that support a competitive
advantage are by definition inimitable, and unidentifiability
inimitability,
is
it
difficult to say
how one
other hand, the view that one cannot
a
either. Is there
way
firm
I
(Penrose,
link
sufficient
make such investments purposively
condition
is
On
for
the
not satisfactory
(p. 13).
Therefore, the overarching research question of this paper
this question,
a
should invest to build a competitive advantage.
out of this conundrum?"
the capability to mobilize
is
knowledge and create new knowledge
is
"How
do companies develop
for innovation?"
In answering
and integrate the theoretical approaches of the resource-based theory of the
1959;
Wemerfelt,
1984;
Barney,
1991),
innovation
literature
based
in
organization theory (Lawrence and Lorsch, 1967; Nohria and Ghoshal, 1997) and innovation
literature
based
in organizational
Wheelwright, 1992).
behavior (Ancona and Caldwell, 1992a, 1992b; Clark and
I
use both inductive and large sample studies to answer the research question.
analysis of multiple comparative case studies of 24 innovation teams in three
the
development of an empirically grounded
theor>'
and propositions on
knowledge and create new knowledge
the capability to mobilize
sample study of 182 cross-fimctional innovation teams
in
The
companies enables
how companies
for innovation.
develop
Then, the large
38 companies serves to
test the
propositions developed in the inductive study and achieve generalizeability.
It
answer the related question, What are the key practices and
for developing the
capability to mobilize
to
knowledge and create new knowledge
strategies
for innovation
also enables us to
and
how
they relate
performance?
The analyses
team" or "mixed"for innovation.
reveal that companies use one of three strategies -"organization", "project
to
develop the capability
Companies
to
mobilize knowledge and create
that follow the "organization" strategy
new knowledge
develop their employees such
that the organization-level processes that support innovation are generated regardless
of when
they are used in the process of innovation. Companies that follow the "project team" strategy
develop their employees only as needed
"mixed" strategy develop
in the
process of innovation. Companies that use the
their personnel at both levels.
The "mixed"
strategy
is
associated with
higher performance in terms of the capability developed and financial performance, followed by
the "project
The
team" and the "organization"
rest
of the paper
is
strategy.
organized as follows.
Section 2
presents
the
theoretical
background. Section 3 provides the research design for the inductive study. Section 4 presents
results
of the inductive study and the proposition developed. Section 5 introduces the research
design for the large sample analysis. Section 6 provides the results of the empirical
proposition. Section 7 concludes.
test
of the
THEORETICAL BACKGROUND: CAPABILITY TO MOBILIZE KNOWLEDGE AND
CREATE NEW KNOWLEDGE FOR INNOVATION
The resource-based theory of
innovation Hterature based
in
the firm can be
organization theorj-
expanded by Hnking
it
to
both the
and the innovation Hterature based
in
organizational behavior to provide a better understanding on the process of developing the
capability to mobilize
knowledge and
create
new knowledge
for innovation.
Capability to mobilize knowledge and create new knowledge for innovation in the resource-
based view
Within the resource-based view, there are two camps that study
this capability:
emphasizes knowledge mobilization and the other knowledge creation.
emphasize the mobilization process tend
that
facilitate
knowledge mobilization,
to
one
who
Researchers
assume creation occurs and only discuss the factors
particularly cooperation and
communication patterns
(Prahalad and Hamel, 1990; Kogut and Zander, 1992). However, they do not explain specifically
how
these factors are developed.
Prahalad and
Hamel (1990) suggest
competencies manage their employees such that there
achieving organizational goals and communication
is
that firms that
have core
a shared sense of cooperation in
patterns
that
transcend
functional
and
business boundaries. They view firms that have core competencies as firms that induce their
employees
to
share
or
mobilize
knowledge and expertise across boundaries
to
generate
innovations. Firms that lack core competencies view each part of the organization as rivals, and
therefore, limits
knowledge mobilization by hiding
critical
knowledge from each other
rather
than sharing
it
to create
new
resources.
Kogut and Zander (1992) suggest
that the "organizing
principles" facilitate the development of this capability by facilitating communication and
cooperation.
capability.
However,
it
is
unclear what these organizing principles are in developing this
Moreover, Nelson and Winter (1982) and Teece
et al.
(1997) suggest that cross-
functional communication routines are important for having this capability. However,
know how these
we do
supporting routines are developed.
Researchers
who emphasize
the creation process
(Nonaka and Takeuchi, 1995; Nonaka,
1994; Leonard-Barton, 1995) view individuals as boundedly rational, and therefore, even
motivation problem for knowledge mobilization
does not lead to
new knowledge
creation.
is
solved,
knowledge
that is
being mobilized
that
is
being shared and convert
organizational knowledge because of knowledge specialization in organization (e.g.,
Takeuchi. 1995; Nonaka, 1994; Leonard-Barton, 1995).
individuals with the absorptive capacity
that is being shared.
and create new knowledge
practices that motivate
if the
Since individuals are boundedly rational, they face the
problems of absorbing and converting knowledge
knowledge
not
This limitation
(Cohen and Levinthal, 1990)
is
it
into
Nonaka and
solved by having
for different types
of
Therefore, in developing the capability to mobilize knowledge
for innovation, for mobilization, organization design or
knowledge sharing are
critical
management
(Lawrence and Lorsch, 1967; Galbraith,
1977; Nohria and Ghoshal, 1997), and the conversion process requires overlapping knowledge
(e.g.,
Nonaka and Takeuchi, 1995; Nonaka,
1994; Leonard-Barton. 1995).
Innovation in organization theory
The innovation
mobilization
is
literature
facilitated
by a
based
set
in
organizational
theory
suggest
that
knowledge
of integrative mechanisms, which are related
to
how
employees are managed (Lawxence and Lorsch. 1967; Miles and Snow, 1978; Beer. Eisenstat.
and Spector, 1990).
These practices are designed
and the building of shared sense of commitment and cooperation
goals.
The
integrative
mechanisms include
facilitating factor is
1977; Ghoshal et
al.,
job design that
in achieving organizational
the use of incentive practices
are designated as integrators and are rewarded for this role
Another
whereby individuals
(Lawrence and Lorsch, 1967).
based on team concepts
is
communication
to facilitate cross-functional
e.g. taskforces (Galbraith.
1994) whereby individuals are assigned to work on projects rather than
individually designed tasks.
Moreover, individuals are rewarded for the behavior of knowledge
sharing (Aoki, 1988), or they are socialized across different functions (Nohria and Ghoshal.
1997)
such
that
they
build
social
communication frequency. The
ties
initial
across
functions
socialization
facilitates
new employees
of
development of shared sense of commitment and vision
that
in
employees with
characteristics that are
sharing (Ichniowski, Prennushi. and Shaw.
employees are either incentivized
they can be
managed such
conducive
1997).
also
facilitate
achieving organizational goals.
addition, recent studies of organizations that are effective in motivating
select
cross-functional
to
knowledge sharing
the
In
also
cooperation and and knowledge
Therefore, for knowledge mobilization,
to share their individual
knowledge through communication or
that they build social ties with other individuals in different functions.
Innovation in organizational behavior
Moreover, another stream of
level
literature
on innovation
that focuses
on the project team-
of analysis, which specifically deals with when organizations organized their employees
into project
teams
for innovation, similar to the organizational capability
and organization-level
innovation literatures, suggests that team-level processes such as communication frequency and
the
among team members
shared sense of commitment and cooperation
knowledge mobilization.
management
These team-level processes are
practices such as
team development (Roth and Kleiner,
performance (Ancona and Caldwell, 1999).
members
Team development
are taught to
communicate with members from
agenda
meetings to share knowledge.
setting the
for
by a
facilitated
is
1
set
are
of project team
996) and reward for team
a process by
which team
different functions, trust building,
Reward
tor
critical
for
and
team performance also
encourages cooperation and communication (Lawler, 1994; Wageman, 1995;
Wageman
and
Baker, 1997).
Other
literature
new knowledge
for
on innovation explains the practices
innovation.
This stream
of
that facilitate the process
suggests
literature
that
process
(lansiti,
1998;
Madhaven and Grover,
1998).
processes of
the
knowledge creation require overlapping knowledge among individuals involved
in the creation
Therefore, the capability to mobilize
knowledge and create new knowledge requires the development of personnel such
overlapping knowledge in different disciplines.
i.e.,
of creating
have
that they
Moreover, since effective resources creation,
product irmovation also requires deep disciplinary expertise and knowledge and some degree
of diversity
among them,
only some employees acquire overlapping disciplinary knowledge.
Since employees in organization have different knowledge
sets,
when organized
teams for mobilizing and creating new knowledge, membership selection, based
overlapping knowledge
to mobilize
is
knowledge and create new knowledge
human
for innovation
management
knowledge and create new knowledge
for innovation.
team-level
in part,
on
important (Nonaka and Takeuchi, 1995: 77). Therefore, the capability
resource
project
into project
practices
is
developed by using a
when organized
to
set
of
mobilize
The
limitations in the resource-based
view and the separation of theories on innovation
in
organization theory and organizational behavior lead to the undertaking of an inductive study to
analyze
how
the capability to mobilize
developed. This
literatures
based
is
knowledge and create new knowledge
important for two reasons.
in organization theory
which companies mobilize knowledge
and the factors that support them.
capability approach
is
is
organizational capabilit\' and innovation
and organizational behavior are about the processes by
to create
new knowledge
for developing
new
resources
Second, though the level of analysis of the organizational
the organization,
the capability to mobilize
First,
for innovation
its
unit of analysis
is
the team.
knowledge and create new knowledge
The main driver behind
for innovation
is
how
well small
groups of carriers of core competence or project teams can effectively mobilize knowledge and
convert their individual knowledge into organizational knowledge in the form of product and/or
process innovation (Prahalad and Hamel, 1990; Kogut and Zander, 1992; Teece
Nonaka and Takeuchi.
et al.,
1997;
1995).
RESEARCH DESIGN FOR THE INDUCTIVE STUDY
The inductive study
the capability to mobilize
consists of the analysis of the factors and practices used to develop
knowledge and create new knowledge
functional innovation teams of three companies.
achieving
maximum
The companies were
project teams
24 cross-
selected on the basis of
divergence in the practices and factors, the independent variables, rather
than on the capability to mobilize knowledge and create
dependent variable.
for innovation in
new knowledge
for innovation, the
For each company, eight randomly selected cross-functional innovation
were selected
for analysis.
Data were collected from three manufacturing
States
(Company Alpha), one
in the
one located
in the Northeastern
United
Midwestern United States (Company Sigma), and another
(Company
a suburb of Tokyo, Japan
plants,
in
Each plant houses more than 500 employees, with
Beta).
design, manufacturing, production, and sales/customer services in one location.
These plants
working on process and product innovations involving each of these
also have project teams
fimctions.
Data were collected following the case study data collection protocol (Yin, 1984).
five different collection
used
methods: trade journals, company archival records, interviews, direct
observation, and a short questionnaire. Before visiting the companies for the purpose of
observations
1
and conducting interviews,
company-supplied archival
data,
I
analyzed each company
using
annual
making
reports,
and secondary sources of information such as trade journals.
Constructs and Variables
This study focuses on variables related to five main constructs: outcome of the capability
to
mobilize knowledge and create
project team-level
organization-level
human
human
new knowledge
resource
resource
management
management
for innovation, project team-level processes,
practices, organization-level processes,
practices.
The
and
selected variables are analyzed
either because previous literature indicates they are relevant for developing the capability to
mobilize knowledge and create
new knowledge
for innovation, or because interviews
and direct
observation indicates they influence the development of this capability.
Capability to mobilize knowledge
construct
capability
represented by
its
to
and
create
new knowledge for
mobilize knowledge and create
outcome,
in this case, the
new knowledge
innovation.
for
The
innovation
is
number of innovations each organization generated
10
through
its
project teams that were selected for the study. For Alpha, six out of the eight teams
came up with an
innovation; therefore, as an organization,
teams came up with an innovation; therefore,
it
this
measure of capability
Kogut and Zander. 1992; Teece
is
For Beta,
has eight innovations. Sigma has
it
innovations, since only five out of the eight teams created
Though
has six innovations.
new knowledge
onh
all
five
for innovation.
consistent with the literature (Prahalad and Hamel, 1990;
et al.,
1997), other measures are also important, particularly
efficiency in terms of resources used in achieving the innovation (Clark and Fujimoto, 1991;
Ancona and Caldwell,
1992), speed-to-market of the innovation, customer satisfaction with the
innovation (Clark and Wheelwright, 1992), and learning (Prahalad and Hamel, 1990).
limitation
is
dealt with in the large
This
sample study.
Innovations in this study are related to both products and processes.
In
Alpha, examples
of the iimovations generated by the project teams are the redesign of manufacturing processes to
improve quality of cameras, which
is
one of
assembling cameras, and improving yield
in
its
core products, minimizing
camera production.
down
time of
For Beta, examples of the
innovations created by the project teams are the reconfiguration of components of heavyweight
construction machines to be launched in the
US
market, the redesign of plowing machines for the
Swedish market, and the redesign of medium-size construction machines with the
technology licensed from a Swedish company.
For Sigma, some of the innovations include the
redesign of alternators for the latest model of the sport
fuel
pumps intended
for markets with
Project team-level
resource
management
extreme heat
utility
(e.g..
are
also
knowledge mobilization and practices
divided
into
that facilitate
vehicles (SUVs), and redesign of
Saudi Arabia and Southeast Asia).
human resource management
practices
latest
practices. Project team-level
two groups, practices
knowledge
creation.
The
that
human
facilitate
facilitators
of
11
knowledge mobilization
which
Project
is
the training the
team development (Thamhain and Wilemon, 1997).
company provides
to
teams for performing a particular project.
team reward (Wageman and Baker, 1997)
team performance, or both,
The
(1) Project
are:
practice that facilitates
terms of
in
salar>' increases,
knowledge creation
and Grover, 1998). The measures
either for individual
is
project
(2)
performance on team, or
bonus, job assignment, and promotion.
team membership selection (Madhaven
for this variable are the specific criteria project
teams used
in
forming their teams.
Organization-level
human
resource
human resource management
management
1
conducted and on
my
facilitators
practices are divided into
knowledge mobilization and practices
of knowledge mobilization
on previous
first-hand observations of the companies.
The organization-level human resource management
The
The organization-level
practices analyzed in this study are based not only
research but also on interviews
practices that facilitate
practices.
that facilitate
are: (1) Selection (Ichinowski.
two groups,
knowledge
creation.
Prennushi and Shaw.
1997). Measures for this practice are coded from evaluation forms used by recruiters of these
companies. (2) For reward, the measures are obtained from the company's performance
evaluation forms and discussions with personnel managers about which factors are critical in
determining salary increase, promotion, and the award and amount of bonus payment. (3) For the
control on individual reward (Katz and Allen, 1985),
I
conducted interviews concerning the topic
of managerial responsibility for control over individual reward
(i.e..
functional manager, project
manager, human resource manager, and peers). For (4) orientation (Nohria and Ghoshal, 1997),
interviewed personnel managers about the introductory steps that
arrival
in
the organization.
managers on
how
daily tasks
(5)
For work patterns,
were performed
in the
1
new employees
1
take upon their
observed and interviewed department
R&D,
sales/marketing, and customer service
12
The
functions.
facilitator
of knowledge creation
Takeuchi, 1995; Leonard-Barton, 1995).
I
is
cross-functional development
(Nonaka and
asked personnel managers to explain step-by-step the
development processes of professional employees, particularly engineers, sales/marketing and
production personnel, from the time of entry to retirement (Westney and Sakakibara. 1986).
Method of Analysis
I
analyzed the data by
first
building individual case studies.
For each project.
I
used a
combination of the "fishbone method" and flow chart documenting the factors by which
knowledge
is
created and transformed into an innovation.
and across companies
proceeded as follows:
to construct a
First,
I
entered
Second.
I
all
The
analysis
responses into a database indexed by company, project
their
number, and then question number from the
constructed a single version of both the organization and team-level
interviews for each case by collecting
response.
then compared across cases within
conceptual framework (Eisenhardt, 1989a).
team for each company, interview questions by
questionnaires.
I
all
Using the interviews, answers
responses to the same question together as a single
to the questionnaires,
and secondary sources.
I
wrote a
case study for each project, then for each organization.
STRATEGIES FOR DEVELOPING THE CAPABILITY TO MOBILIZE KNOWLEDGE
AND CREATE NEW KNOWLEDGE FOR INNOVATION
The inductive study
reveals that companies use one of three strategies, \\hich
the "organization", "project team" or
and create
new knowledge
"mixed"
for innovation.
to
I
refer to as
develop the capability to mobilize knowledge
The company
that follows the "organization" strategy
13
has higher capability in terms of innovation
it
generates, followed by the "mixed", and the
"project team".
"Organization" strategy. Beta follows the "organization"
develops
its
employees such
generated regardless of
facilitators for
strategy,
which means
that
it
that the organization-level processes that support innovation are
when
they are used in the process of innovation.
It
develops the
knowledge mobilization by developing extensive cross-functional communication
patterns or routines and a shared sense of cooperation across functions such that they are built
into the organizational context regardless of
when organized
when
they are needed for innovation.
for innovation, these processes occur automatically
using project team-level
human
management such
resource
as
Therefore,
on project teams without
team development, reward
for
team performance, and team membership selection was based on informal networks and tenure
diversity rather than specifically for overlapping
this
by selecting
new employees based on
knowledge among members.
personality traits conducive to
It
accomplishes
knowledge sharing and
cooperation, reward based in part on behavioral factors such as cooperation, dividing up the
control over individual's reward system between functional and non-functional managers, the
initial
socialization
Moreover,
later
on
that
in
gives a holistic
firm,
and cross-functional training.
employees' careers, they are provided with cross-functional development
whereby the view of the organization
knowledge
view of the
as a system
is
reinforced and at the
same time they acquire
in these different parts.
"Project team" strategy. Sigma follows the "project team" strategy whereby
its
employees only as needed
irmovation.
in the
At the organization-level
process of mobilizing and creating
it
lacks the cross-functional
the shared sense of cooperation across functions that facilitate
it
develops
new knowledge
for
communication routines and
knowledge mobilization.
In
14
contrast to Beta,
Sigma
recruits
employees solely based on individual potential performance,
reward only based on individual performance, the control over individuals" reward
functional managers, and the initial socialization
are hired for
and expected
to
remain
for the rest
However, when organized
among
relevant
development
to
accomplish the
commitment
members from
of their careers. Moreover,
facilitate
in trust building so that
communication
strateg>'.
it
tries
using
develop communication
to
external
team members share
in order to
accomplish the
experts
on
team
knowledge
their
to
task.
Alpha uses the "mixed" strategy whereby
both levels. However, unlike Beta,
it
lacks the facilitator
Moreover, these experts also develop a shared language and sense of
task.
to facilitate
"Mixed"
by
functions
it
does not proxide cross-functional
it
for innovation,
different
held by
only within the same function in which they
is
of knowledge creation, overlapping knowledge, because
development.
is
in
develops
it
its
employees
at
order to develop cross-functional communication patterns,
divides up the control over individual's reward between functional and the project managers,
though functional managers have more control.
solely
Similar to Sigma,
it
selects
new employees
based on their individual potential performance, rewards based onh
performance, and does not provide any formal orientation. However,
have overlapping knowledge between manufacturing and
sales/marketing.
However, unlike Beta,
are given the
same
develops
project
its
communication
this
R&D.
development
is
training at any given point in time.
in the
teams
using
facilitators
process of innovation.
favorable job assignment to team
knowledge across functions
is
members
who
In
are
develops
its
engineers to
and some off the job training
less systematic.
When
not
addition,
for their
it
on individual
it
Not
all
engineers
organized for innovation
team
members
to
in
it
facilitate
provides reward in terms of
team performance.
Since overlapping
developed unsystematically. overlapping knowledge found on
15
teams are not as automatic as
in Beta;
and therefore, team members were carefully screened
for
some overlapping knowledge.
In conclusion, the inductive study identified three strategies for the
capability to mobilize
knowledge and create new knowledge
strategies -organization
and project team- were
mixed- emerged from
for innovation.
the inductive analysis. Hence,
I
propose
"
"mixed"-
develop the capability to mobilize knowledge and create
Companies
three strategies -"organization,
one -
"project team,
"
or
new knowledge for
that follow the organization strategy develop their employees such that
the organization-level processes that support innovation are generated regardless of
are used in the process of innovation.
their
of the
that:
Companies use one of
innovation.
Two
identified in the literature, while the third
Proposition:
to
development of the
personnel only as needed
in the
Companies
that follow the project
process of innovation.
when
ihey
team strategy develop
Companies
that use the
mixed
strategy develop their employees at both levels.
RESEARCH DESIGN FOR THE LARGE SAMPLE STUDY
After identifying in the inductive analysis three alternative strategies for developing the
capability to mobilize
knowledge and create new knowledge
project team, and mixed-,
strategies,
I
now conduct
understand the differences, and
for innovation -organization,
a large sample analysis to confirm the existence of the
test for their
performance implications.
Sample
Data were gathered through surveys of 182 cross-functional project teams of 38 large
and Japanese multinational firms
in the
US
computer, photo imaging, and automobile industries that
16
have operations
in the
United States. The analysis of companies present
in different industries
supports the generahzation of resuhs across industries.
The companies
industries.
the
The
selected were present in the computer, photo imaging, and automobile
were selected because they face
industries
computer industry, medium-sized
respective industries based
in the
automobile
on gathering and processing different types of knowledge
(Lawrence and Lorsch,
The companies were
photo imaging industry, and long
in the
industr\'- that affect the time pressure
for irmovation
different innovation cycles -short in
967).
1
selected based on
on revenue
two
factors. First, they
as reported in the
were the
largest in their
Hoover's HandBook of World Business
(1999). Second, they had customer service centers in the United States and Japan dealing with
similar products. This requirement
compares sources of
was necessary because
this capability
of
US
this study is part
of a larger
and Japanese multinational enterprises
stud\- that
in
both the
United States and Japan.
For each company, the largest customer service center
the United States
was
Affiliations (1998).
selected.
1992).
terms of employees located in
These centers were identified using the Director)' of Corporate
The customer
linking firm's external
in
service organization
demands and
The customer service
internal design
centers
selected
had
was
selected because
it
is
the gatekeeper
and manufacturing capabilities (Quinn,
at
least
three
sales/marketing, customer service, and engineering linking to the
functions
R&D
represented:
and manufacturing
organizations.
In each
company,
a set of cross-functional project teams
teams were selected based on three
customer
service,
engineering
criteria.
(i.e.
R&D
First,
or
at
was randomly
least three functions
manufacturing)
and
selected. Project
were represented:
sales/marketing
or
17
manufacturing. Second, the main objective of the team was to transform specific external
customer feedback obtained from the firm's worldwide operations about
their products into
an
innovation.
Data Collection
There were three steps
to the data collection process.
First, in
depth field interviews,
observations and phone interviews were conducted to ensure a deep understanding of the
phenomenon. Second, a
pilot study
was conducted
to test the variables
and measures and survey
instruments. Finally, the surveys were conducted.
In order to avoid single respondent bias and separate out levels of analysis,
I
collected the
data from three different sources using three separate surveys (Rousseau, 1985; Klein, Tosi,
Cannella, and Albert, 1999). Data on the organization-level
management
were collected from a personnel manager, because a personnel function
and therefore
this
different functions
The data
manager has
the best
and can speak about
it
knowledge about
more
for the team-level variables
project managers. For each
company
were asked
to
to take a survey
minimize team response
these projects using the
Caldwell,
1992a).
the interaction
manager was asked
Based on
this
practices,
list,
boundary function
between and among
in the
to provide a
list
of projects
randomly selected team leaders
and performance. However,
in
order
to evaluate the
outcomes of
questionnaire for the team leaders
(Ancona and
managers were also asked
same metrics used
a
were collected from the project team leaders and the
on team management
bias, project
is
objectively.
the project
and the team leaders that supervised them.
practices and processes
The empirical analysis presented
managers' rating since project managers are probably
in
this
less bias
study
is
based on the project
about team performance than the
18
team
leaders, as they
were also analyzed
were not
directly involved in the project.
for comparison.
The
results
However, team
were consistent with the
leaders" ratings
results
based on the
project managers' rating.
Measures
Capability to mobilize knowledge
performance. The construct capability
represented by
its
but only through
definition of
firm's
level
its
of success
new
(Godfrey and
effects
level
knowledge and create new knowledge
this intangible capability is not
1995). Innovation
Hill,
in
incorporating
external
(0-PRODNOV)
customer feedback from
last five
=
years (a
for the
sales
&
(0-LNROS),
return
on
assets
Associates for the automobile industries,
two
management system (0-HRM). and
overall reliability score for
ability to
(0-LNROA), and
human management
practices suggest that the practices belong to
The
This variable
computer industry, and an external marketing research company
Organization-level
resource
worldwide
Another organization-level variable
0.84).
photo imaging industry (a = 0.87). Organization-level financial performance
on
its
product development and product modification as well as by the number of
measured by ratings published by JD Power
the return
follows the
measured by the
is
of customer satisfaction with the innovafions (0-CUSTSAT).
World Magazine
is
measurable directly
(1986), and Nohria and Gulati (1995). Innovation
products developed within the
the
to mobilize
outcome, innovation, since
Van de Ven
operations into
and create new knowledge for innovation and financial
work on team and
(0-HRM)
is
practices.
return
is
PC
for the
on equity (0-LNROE).
Factor analyses of
all
management
human
team management system (P-HRM).
(a = 0.81). consisting
the willingness to cooperate;
is
measured using
different groups: the organization-based
the project
is
(2)
of: (1) selection
The reward
based on
structure in this system
19
consists of the extent to
increase,
rewards
which cooperative behaviors have any impact on individual
award of bonus payment, promotion, and job assignment;
(3) Control
salan'
over individuals'
measured by how much control the project manager, human resource manager, and
is
peers have on individual salary increase, promotion, and job assignment; (4) Cross-functional
orientation
is
measured by whether companies put new professional employees through cross-
functional orientation at both the operational and corporate levels; (5)
by whether daily task requires the use of team, and by
cross-functional teams
(i.e.,
Work
pattern
the level of participation of
quality circles). (6) Cross-fiinctional training and
is
measured
employees on
development were
determined by whether companies put their engineers through on and off-the-job training and job
rotation in other functions, particularly
R&D,
sales/marketing, and manufacturing.
The project team-level human resource management practices.
human
resource
management system (P-HRM) (a =
(training provided for performing tasks
0.60)
on a particular
is
composed
project);
affects salary increase, bonus, job assignment, and promotion);
selection (selection based
The
project team-level
of: project
team training
reward (team performance
and project team membership
on cross-functional job experience, knowledge, and expertise
human
for
project).
The lower
system
consistent with the qualitative data, which suggest that although team-based incentive
is
reliability score for the project-team level
and other practices are institutionalized
(Ichniowski
In
some
others
it
et al..
the
production organization for performing daily tasks
is in
the form of a favorable job assignment and promotion, while in
form of bonus and salary increase.
The second-order
practices a
management
1997). these practices are not institutionalized for the white-collar workforce.
cases, the reward
is in
in the
resource
factors are used to
more equal weight.
If individual
form these systems
measures are used
in order to give
directly,
each
set
of
each of the management
20
practices,
project
(i.e.,
team reward (P-RWRD)) which consist of several measures,
greater weight than say,
P-DEVLOP, which
measures under each practice,
more evenly
have
only has one measure. Therefore, by combining
selection, reward, training,
(i.e.,
will
and development), the weights are
distributed for the purpose of conducting the cluster analysis.
Method of Analysis
Since the main goal of this large sample analysis
understand the differences
among
mobilize knowledge and create
each strategy,
of the three
in
their practices
identified,
confirm the existence and
for innovation,
and
to
gauge the effectiveness of
First, a cluster analysis to
comparison of means
confirm the existence
to test the differences
and performance. Once the clusters
that define the
among
strategies
strategies
have been
conduct comparison of means of independent and dependent \ariables (using both
I
the T-tests and
in order to
new knowledge
strategies, and, then, a
to
the strategies that firms use to develop the capability to
perform two types of analyses:
I
is
Tamhane"s T2 multiple comparison methods), without assuming equal variance,
determine which strategy
is
more
knowledge and create new knowledge
determine which strategy
comparisons
to
be
is
for
effective at developing the capability to mobilize
innovation.
The same procedures
associated with higher financial performance.
made between two
strategies
at
a time,
The
are used to
T-test allows
while Tamhane's
simultaneous comparisons of three strategies. The reason for conducting both
T2 allows
tests is that
while
any three strategies might not be significantly different from each other, they could be
significantly different
from any given two
strategies.
21
RESULTS: EXISTENCE OF THREE STRATEGIES AND DIFFERENCES IN
MANAGEMENT PRACTICES AND PERFORMANCE
Three Strategies for
Figure
1
Capabilit>'
shows
Development
the results from the cluster analysis.
The
results
show
The
follow one of three strategies: the organization, project team, and mixed.
strategies are selected because they
that
companies
three cluster
have high face validity and the distances between clusters are
about equal. The only significant differences between firms are in their organization-based
human
resource
management system (0-HRM), which
organization level, and their project team
developing persormel
at the project
team
resource
management
new knowledge
for innovation.
new knowledge
level.
The differences
in strategies
different
strategies
knowledge
management and
in the
0-HRM
and
project team
human
knowledge and create
P-HRM
used by companies
the
results
about here
of comparison of means of firms"
in the three clusters.
in
1
Development and Management Practices
presents
management systems
important, as previous studies tend
for innovation.
Strategies for Capability
1
resource
is
used to develop the capability to mobilize knowledge and
Insert Figure
Table
This result
practices as facilitators of the capability to mobilize
determine the differences
create
management system (P-HRM), which deals with
human
to discuss only the organization-based
deals with developing employees at the
developing the
for innovation.
The
The
results
capability
to
show
human
resource
that
companies follow one of three
mobilize
knowledge and create new
three strategies are referred to as: (1) organization strategy.
22
whereby employees are developed
process of innovation;
in the
only as needed
strategy,
(2)
when employees
at the
The
organization level regardless of
project
team
is
whereby employees are developed
at the
Cluster
Japanese and 12 are American.
1
consists of 16 companies.
Ten of the companies
Of the
for the organization-level
follow the project team
human
strateg>',
resource
but a lower
resource
strategy; but these firms
two
are in
These companies are
this cluster
have a higher
management system (0-HRM) than firms
mean
that
than firms that follow the organization
Additionally, firms that follow the mixed strategy have a lower
human
16 companies, four are
are in the computer industry,
designated as those, which follow the mixed strategy. Companies in
team-level
The mixed
organization and at the project team level.
the photo imaging industry, and four are in the automobile industn.-.
strategy.
(3)
not constrained by industr>' or country of origin of companies.
The mixed strategy.
mean
they will be used
are organized into project teams for inno\ation;
whereby personnel are developed both
Choice of strategies
strategy,
when
management system (P-HRM) than
have a higher mean compared
mean
for their project
firms that follow the project team
to firms that
follow the organization
strategy.
The organization
strategy.
Cluster 2 contains five companies that are described as
following the organization strategy in developing the capability to mobilize knowledge and
create
new knowledge
for innovation.
Of
the five companies,
three are American. Three are in the computer industr>% one
one
is
in the
automobile industry.
Compared
to firms
is in
two are Japanese and the other
the photo imaging industr>'. and
following the other two strategies, these
companies use more of the organization-level human resource management system (0-HRM)
and the
least
of project team-level human resource management system (P-HRM).
23
The project team
Cluster 3 contains
strategy.
strategy, four are Japanese
and 13 are American.
industry, three are in the photo imaging,
firms
is
and
7 firms.
1
Of the
1
7 firms that follow this
Seven companies are
six are in the
in to the
automobile industry.
computer
This group of
described as following the project team strategy, as they do not focus on developing their
employees
at the
when organizing employees
organization level, but only as needed
into project
teams for innovation. Their mean for project team-level human resource management system (P-
HRM)
the
highest compared to firms that follow the organization strategy and firms that follow
is
mixed
(0-HRM)
strategy.
is
The mean
the lowest
that follow the
mixed
for their organization-level
compared
1
also
differentiate them.
over
control
management system
and firms
strategy.
shows the
capability to mobilize
resource
to for firms that follow the organization strategy,
Insert Table
Table
human
1
about here
specific characteristics of the three strategies for developing the
knowledge and create new knowledge
The
practices that differentiate
individuals'
rewards
all
for innovation,
and the factors
three strategies are: project managers'
(0-XCNTRL),
organization-level
cross-functional
development (0-DEVLOP), and team-level development (P-DEVLOP), which suggest
mixed
companies
that follow the
facilitating
knowledge mobilization but
for innovation,
the
also creation for innovation.
teams are developed specifically
for
performing that
Moreover, when organized
task.
three strategies suggest differences at the level of individual
There are several specific practices
organization strategies.
that
strategy use practices that not only the literature suggests as
Two-way comparisons of the
practices.
that
that differentiate firms following the
mixed and
Firms that follow the organization strategy, on average, give
24
more
significantly
control over individuals' rewards to project managers than do firms that
follow the mixed strategy (mean of 4.00
vs. 2.66).
At the project
however, firms that
level,
follow the mixed strategy provide a significantly higher level of development and reward to their
project teams than
do firms
DEVLOP and mean of 2.67 vs.
Moreover, firms
team strategy
(mean of 3.00
that follow the organization strategy
1.00 for
that follow the
mixed
strategy differ
from firms
vs. 1.66).
that follow the project
mixed
in the following ways. First, firms that follow the
(mean of 2.66
2.00 for P-
P-RWRD).
managers more control over individuals' rewards than do firms
strategy
vs.
strategy give project
that follow the project
Second, unlike firms that follow^ the project team strategy,
team
at
the
organization-level, they provide cross-functional development to their engineers through job
rotation
between
regardless of
R&D
when
and manufacturing, and through off-the-job training
they are organized into teams for creating
in sales/marketing,
new knowledge
for innovation
(2.71 vs. 0.83).
Third, they also provide additional development and reward to their employees
when organized
into project
but
at
teams for mobilizing and creating new knowledge for innovation,
a lower level than the firms that follow the project team strategy
P-DEVLOP
and 2.67
4.00 for
vs.
and firms
that
in this
comparison, of firms that follow the organization
follow the project team strategy, than there are
mixed
that follow the
project team
firms that follow the organization strategy
emphasis on
selecting
In
employees based on behavioral
mobilization (mean of 2.00 vs.
individuals'
strategy.
0.83),
rewards (mean of 4.00
vs.
factors
and give more control
1.66).
In
in
comparison with firms
comparisons with firms
strategy,
vs. 4.38 for
P-RWRD).
There are greater differences
strategy
(mean of 3.00
addition,
put
previous
that follow the
significantly
conducive
to
the
project
to
higher
knowledge
managers over
they provide cross-functional
25
development
to professional
employees (mean of 3.27
which
vs. 0.83),
facilitates the acquisition
of overlapping knowledge, which supports knowledge creation, regardless of when employees
are organized to mobilize
do much
knowledge and create new knowledge
less than firms that follow the project
team strategy
P-RWRD
1
However, they
at the project level
P-DEVLOP
organize employees into project teams for innovation (mean for
for
for inno\ation.
when they
2.00 vs. 4.38 and
is
.00 vs. 4.00).
Strategies for Capability
Development and Performance
Table 2 presents the results from testing the effectiveness of the strategies to develop the
capability to mobilize
differences
among
knowledge and
new knowledge
(0-PRODNOV), customer
(LNROS), product innovation
The
for inno\ation.
significant
outcomes of capability: Overall
the three strategies exist in the following
organization-level product innovation
(0-CUSTSAT),
create
satisfaction with the innovation
the project level
(P-PRODNOV).
efficiency at the project level (P-EFFIC), and speed-to-market of the innovation
(P-SPEED). For
return
on
sale
company (0-PRODNOV),
the overall product innovation of the
to
at
be most effective followed by the mixed and the project team
satisfaction with the
level
company's innovation (0-CUSTSAT),
(P-PRODNOV), and
the organization strategy
strategies.
For overall customer
for product innovation at the project
efficiency at the project level (P-EFFIC), the
mixed
strategy
be most effective, followed by the project team and the organization strategies.
market of the innovation (P-SPEED), the project team strategy appears
followed by the mixed and the organization strategies.
terms of return on sale (LNROS),
we
by the project team and organization
also see that the
seems
However,
mixed
to
is
most
to
For speed-to-
be most effective,
for financial
strategy
seems
performance
in
effective, followed
strategies.
26
When we compare companies
that the
mixed
strategy
is
more
that follow the
mixed and project team
team
effective than the project
outcomes: Overall company product innovation
(0-PRODNOV), customer
company's innovation (0-CUSTSAT), product innovation
team strategy seems
project
outcomes of capability, the
performance
equity
in
(LNROE),
mixed
strategy
is
seems
strategy
to
(P-PRODNOV),
(P-EFFIC).
(P-LEARN).
effective for learning
With other
do not yield significant differences. For financial
(LNROA), and
on
return
be more effective than the project team strategy.
the effectiveness of the
mixed and organization
with higher performance on the
associated
strategies,
we
see that
following outcomes of
customer satisfaction with the company's innovation (0-CUSTSAT). project
product innovation
innovation (P-SPEED).
(LNROS), we
different strategies
mixed
the
capability: overall
level
more
see
satisfaction with the
at the project level
terms of return on sale (LNROS), return on assets
When we compare
the
to be
we
on the following
at the project level
process innovation (P-PROCESS), and, potentially, efficiency
The
strateg>
strategies,
(P-PRODNOV),
Moreover, for financial performance
also see that the
organization strategy.
efficiency (P-EFFlC), and speed-to-market of the
mixed strategy
However,
for return
is
in
terms of return on sale
associated with higher performance than the
on equity (LNROE), the organization strategy
is
associated with potentially higher performance.
When we compare
we
the performance of the project
see that the project team strategy
overall
is
more
team and the organization
strategies,
outcomes of
capability:
effective for the following
customer satisfacfion with the company's innovation (0-CUSTSAT), project
product innovafion
(P-LEARN).
associated
(P-PRODNOV),
level
speed-to-market of the innovation (P-SPEED), and learning
Moreover, for financial performance, we see
with higher performance
in
that the project
terms of return on
sale
team strategy
(LNROS). However,
is
the
27
organization strategy
is
associated with higlier performance than the project team strategy on the
following outcomes: overall company-level product innovation
(0-PRODNOV)
and potentially
process innovation at the project level (P-PROCESS). In terms of financial performance,
that for return
(LNROA)
on assets
we
see
and return on equity (LNROE), the organization strategy
associated with higher performance.
I
is
also tested for the effect of industry and country of origin
of companies and found no significant effects on these strategies and outcomes, although certain
industries
and companies with different national origins tend
to put
more emphasis on
certain
practices than others.
Insert Table 2 about here
In
summary,
mixed
the
strategy,
organization and project team levels
whereby employees
when organize
for creating
are
new
developed
both
the
at
resources for the firm,
(i.e..
innovation), seems to be the most effective for overall customer satisfaction with compan\'
products, and for product innovation and efficiency at the project level.
that follow this strategy also
seem
to
have higher
level
Moreover, companies
of financial performance.
However,
for
speed-to-market of the innovation, the project team strategy seems to be more effective than the
mixed
strategy.
For other outcomes of the capability, any of the strategies may lead
to similar
results.
DISCUSSION AND CONCLUSION
As more
attention
is
given to the firm's resources and capability
source of competitive advantage,
develop the capability
to
we
find
it
more important
mobilize knowledge and create
set as a
to understand
new knowledge
more promising
liow companies
for
innovation.
28
Previous studies on innovation that focus on the organization-level factors suggest that firms
develop
this capability
by following the organization strategy (Galbraith.
They accomplish
Lorsch, 1967; Nohria and Ghoshal, 1997).
such
that
supporting
the
organization-level
communication and cross-functional cooperation are
when
their
particularly
cross-functional
employees
of
built into the organization, regardless
they are needed in the process of innovation. Other studies on innovation that focus on the
project team-level factors
that firms
develop
(Ancona and Caldwell, 1992; Clark and WheelwTight, 1992) suggest
this capability
by following the project team strategy, whereby employees are
developed only as needed when personnel are organized
the
977; Lawrence and
by managing
this
processes,
1
literature
stands,
each stream of
literature
into project
has distinct
teams
for innovation.
implications
for
the
As
of
study
organizations and strategic management.
This study develops the resource-based theory of the firm and bridges the gap between
the
two streams of
literature
by showing
developing the same capability.
that
companies follow one of three
distinct strategies in
In addition to the organization and project
team
strategies
suggested by previous research, companies also follow the mixed strategy. Instead of developing
their
employees
cross-functional
at either level, in a
that facilitators
of knowledge mobilization such as
communication and cooperation are embedded
developing them as needed
little
way
when personnel
in
their
are organized for innovation,
daily
context,
or
many companies do
a
of both. In particular, the mixed strategy involves developing their human resources so that
not only facilitators of knowledge mobilization are
facilitator
embedded
in the organization, but that the
of knowledge creation or overlapping knowledge (Madhaven and Grover, 1998;
Nonaka. 1994),
are also available at the organization level.
Moreover, when personnel are
29
organized into project teams for innovation, companies also provide some development on
how
teams work together to accomplish the task (Beer and Eisenstat, 1996).
This study shows that the mixed strategy
this capability
is
associated with a wider range of outcomes of
and better financial performance than the other two
strategies.
In particular,
supports the overall customer satisfaction with company's products, product innovation
project level, and efficiency in terms of resources used in achieving the innovation.
reason
is that
demands of
the capability to create
new
resources for firms,
external customers, requires both
i.e.,
it
at the
The main
innovation that satisfies the
knowledge mobilization of customer preferences,
and design and production (Dougherty, 1992), and the factor
that facilitates the
conversion and
transformation of these knowledge sets (Leonard-Barton, 1995; Nonaka, 1994;
Madhaven and
Grover, 1998).
different
This facilitator
is
the absorptive capacity
knowledge being shared. Since
this
(Cohen and Levinthal, 1990)
overlapping knowledge
functional development, the critical organization-level factor
is
is
1998), even if there
is
overlapping knowledge available
development, whereby team leaders or corporate trainers
at the
acquired through cross-
this practice.
different innovation projects require different individuals with different
for
Further, since
knowledge
sets (lansiti,
organization level, additional
facilitate the
organization of the work
processes of project teams, seems to be most effective.
The
different
knowledge and
create
strategies
new
that
companies use
to
develop the capability
to
mobilize
resources are not explained by the industries in which they compete.
This result suggests that companies have the strategic choice to choose the strategy they want to
use to develop this capability (Miles and Snow, 1978), although companies
in certain industries
tend to emphasize certain practices more than companies in other industries (Lawrence and
Lorsch. 1967).
30
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MA.
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FIGURE AND TABLES
FIGURE
1
Hierarchical cluster analysis of human resource and project team
Cluster
1
management systems:
mixed, Cluster 2 organization. Cluster 3 project team
Dendrogram using average linkage (between groups)
Rescaled distance cluster combine
CASE
Label
10
Seq
15
20
25
TABLE
Human
resource
management systems and
practices of the three strategies: Cluster
strategy. Cluster 2 organization strategy,
Clustering variables
1
and Cluster
3 project
team strategy
1
mixed
TABLE 2
Outcomes of the
capability to mobilize
the three strategies: Cluster
1
mixed
knowledge and create new knowledge
strategy, Cluster 2 organization strategy,
project
Performance
for innovation
team strategy
and Cluster
and
3
NOV
.innMnico
3 9080 02245 2095