How Does a Technological Firm Develop Its Competitive Advantage? A Dynamic Capability Perspective

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How Does a Technological Firm Develop Its Competitive Advantage? A Dynamic Capability Perspective Kuo-Feng Huang, Lei-Yu Wu, Romano Dyerson, and Chun-Fu Chen

Abstract—Dynamic capabilities have been widely discussed in the past decade but how the determinants of dynamic capabilities affect a firm’s competitive advantage has not been fully explored. This paper develops a quantitative method to investigate how a firm’s dynamic capabilities affect a firm’s competitive advantage. This study examines the developed hypotheses through a questionnaire survey of 165 firms together with a number of interviews drawn from Taiwan’s information and communication technology industry. The results suggest that three determinants of dynamic capabilities (i.e., path, process, and position) influence a technological firm’s competitive advantage in different ways. Both position and process have direct positive impacts on firm competitive advantage while position also has a mediating effect on the relationship between process and firm competitive advantage. This paper closes with theoretical and practical implications. Index Terms—Dynamic capability, innovation, technological competence.

I. INTRODUCTION O enjoy a lasting competitive advantage in fast changing markets, firms must nurture the ability to innovate [33], [56]. Porter [49] also notes that a firm’s technological competence can be regarded as a source of competitive advantage. There are a piecemeal list of technological competences identified as central in shaping a firm’s competitive advantage, including abilities to explore technological opportunities [40], [53], [65], coordination capabilities [10], [29], network resources [24], [54], core technology or core business [40], [50], and culture effects [6], [32]. Nonetheless, a consensus has yet to be reached as to how technological firms can sustain their competitive advantage in fast changing environments. One perspective is offered by proponents of the resource-based view (RBV) of the firm who argue that firms can sustain competitive advantage if they possess

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Manuscript received September 25, 2010; revised May 16, 2011 and October 16, 2011; accepted October 25, 2011. Date of publication March 1, 2012; date of current version October 16, 2012. This work was supported by Research Project from the National Science Council of Taiwan under Grant NSC-962416-H-004-028. Review of this manuscript was arranged by Department Editor C. Tucci. K.-F. Huang and L.-Y. Wu are with the Department of Business Administration, National Chengchi University, Taipei 116, Taiwan (e-mail: kfhuang@ nccu.edu.tw; [email protected]). R. Dyerson is with the School of Management, Royal Holloway, University of London, Surrey, TW20 0EX, U.K. (e-mail: [email protected]). C.-F. Chen is with the National Taipei College of Business, Taipei 100, Taiwan (e-mail: [email protected]). Digital Object Identifier 10.1109/TEM.2011.2176340

valuable, rare, inimitable, and nonsubstitutable resources [7]. If firms possess heterogeneous and sticky resource bundles, and if they can identify how unique these resources are, they can decide in which markets these resources can generate the most rents, and decide whether the rents from these resources are most effectively utilized by integrating related markets, selling the relevant intermediate outputs to related firms, or selling the resources themselves to a firm in a related business [59], [60]. However, the RBV is a static approach for analyzing a firm’s competitive advantage [51]. Firms can accumulate a large stock of valuable technology assets or resources and still not have many useful capabilities [64]. Dynamic capabilities, in explaining how firms integrate internal resources to cope with fast changing environments, help us to answer how technological firms facing uncertain technological and market environments can sustain competitive advantage. The global competition in high-technology industries has demonstrated the need for an expanded paradigm to understand how competitive advantage is achieved. In a rapidly changing and technology-intensive environment such as found in information and telecommunication technology (ICT) industries, the ability to integrate, to build, and to reconfigure diverse capabilities, both inside and outside the firm, in response to changing environmental conditions becomes increasingly important [64]. Researchers regard this ability as a dynamic capability, which has been thought to be important in helping to foster a firm’s competitive advantage [61], [62], [64]. The competitiveness of a firm, particularly in fast changing environments, lies with its managerial and organizational processes, shaped by its specific assets, and the paths available to it [64]. A dynamic capability, therefore, acts as a meta competence, enhancing a firm’s ability to flexibly exploit a variety of technological resources and capabilities [10], [40], [63]. Although dynamic capabilities have been widely studied in the past decade, there are varying definitions of the concept of dynamic capabilities, such as processes [20] or routines from the nature of evolutionary economics [68]. Furthermore, Helfat et al. [31, p. 4] assert that a dynamic capability is the capacity of an organization to purposefully create, extend, or modify its resource base. Prior studies [20], [55], [64], [68], [72], [73] mainly focus on constructing an overall framework for dynamic capabilities, which provide the foundation for our understanding. While most of these contributions are conceptual and qualitative studies, an increasing number of studies have started to investigate dynamic capabilities using quantitative techniques. However, they rarely take a closer look into the construct itself [18].

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HUANG et al.: HOW DOES A TECHNOLOGICAL FIRM DEVELOP ITS COMPETITIVE ADVANTAGE? A DYNAMIC CAPABILITY PERSPECTIVE

This leaves dynamic capabilities as little more than a black box. The lack of a universal definition, for instance, the difference between the process perspective by Eisenhardt and Martin [20] and the learning perspective by Zollo and Winter [72], also hampers the emergence of a commonly accepted generalized approach for the measurement of dynamic capabilities. More recently, an increasing number of studies have attempted to operationalize the concept of a dynamic capability and examine its impact on firm performance [25], [39], [44], [69], [70] or new product development [21]. Typically, these latter studies treat dynamic capabilities as a construct and examine its effect on firm performance [21], [25] or use another construct (e.g., learning in [39]) as a proxy for dynamic capabilities. What is often missing is an unpacking of the various determinants of dynamic capabilities on a firm’s competitive advantage. Thus, by adopting the widely applied Teece et al.’s [64] concept of dynamic capabilities, including process, position, and path, this paper attempts to examine how they affect a technological firm’s competitive advantage. This allows us to answer the following questions: how does a technological firm’s dynamic capability facilitate competitive advantage? Do process, position, and path of dynamic capabilities affect a firm’s competitive advantage simultaneously, sequentially, or interactively? We first review the literature, identify and develop the constructs of a dynamic capability for technological firms, which are then assessed quantitatively using a dataset built from both primary and secondary sources. The constructs were then tested using data drawn from 165 Taiwan’s ICT firms as an example of technologically focused firms operating in a fast changing environment. II. THEORETICAL BACKGROUND A. Dynamic Capabilities and Competitive Advantage Winners in the global marketplace are the firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability to effectively coordinate and redeploy internal and external competences [64]. Dynamic capabilities are about change and learning [4], [71], as well as renewal [4], [55] and novelty [3]. Dynamic capabilities remain hidden until exercised. They could be exercised if the external environment puts pressure on firms or if firms proactively create new resource combination in order to exploit identified opportunities [57]. Therefore, a firm’s repertoire of resources is widely regarded as the source of a firm’s competitive advantage [7], [48]. In earlier studies, capabilities are normally represented by a firm’s human resources or the interactions between human resources and other resources [26]. Fahy [22] distinguishes between the personal capability and the organizational capability in a firm. Personal capabilities refer to an employee’s knowledge or experience accumulated via jobs and work operations. Organizational capabilities though refer to a firm’s ability to deploy or integrate two or more resources to accomplish a task. This is similar to the conceptualization that a firm’s capability refers to the ability to deploy and reconfigure

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resources [1]. As a result, organizational capabilities might be regarded as synonymous with dynamic capabilities if these capabilities can be exercised if and when the external environment puts pressure on firms. Teece et al. [64] introduced the concept of dynamic capabilities to help explain how a firm can sustain competitive advantage and asserted that dynamic capabilities reflect a firm’s ability to achieve new and innovative forms of competitive advantage. Teece et al. [64, p. 516] defined a “dynamic capability” as a firm’s “ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.” According to this definition, a firm’s dynamic capabilities are composed of a number of dimensions, grouped by Teece et al. [64] into three categories: process, position, and path. Each of these categories has several determinants. For instance, “process” includes the capabilities of coordination and integration, learning, and reconfiguration and transformation. According to Teece et al. [64], better organizational processes enable the firm to adjust more rapidly as the environment changes due to its superior ability to coordinate, integrate, and reconfigure different resources and capabilities. Teece et al. [64] regard “position” as reflecting the build up of the firm’s asset base and this can stem from a variety of technological, complementary, financial, reputation, structural, institutional, and market structure sources. According to the RBV [16], a firm with abundant resource repertoires or in a stronger position on these assets can respond faster to environmental changes and so retain competitive advantage. Finally, “path” includes the firm’s path dependence; its history and technology opportunities. The prior commitments of a firm help determine the firm’s sequential path for its present and future growth [17], [42]. To some extent, a consistent path from the past to the future may enhance a firm’s competitive advantage over a period of time. However, if the environment is highly dynamic in terms of technology, too strong a commitment to the prior path may jeopardize the possibility to develop or explore new technological opportunities, so called “core rigidity” by Leonard-Barton [35]. Therefore, balancing path dependences with flexibility is critical for a firm’s competitive advantage. The adoption of Teece et al.’s definition of dynamic capabilities is not without controversy as different scholars have different definitions of dynamic capabilities [18]. Indeed, as recent review notes by Wang and Ahmed [66], these studies not only fail to agree on the concept of dynamic capabilities but also lead to contradictory arguments. This lack of agreement is perhaps most exposed in empirical work in which different studies uses different measurements for dynamic capabilities. For instance, Ettlie and Pavlou [21] use absorptive capacity, coordination capability, and collective mind as a measure for dynamic capabilities. Newbert [44] assesses a firm’s dynamic capabilities via the type and combination of resources as well as resource reconfiguration. Giffith and Harvey [25] use different proxies, such as power via a questionnaire survey, to measure dynamic capabilities. It is thus important that we be clear as to how we view dynamic capabilities. In this study, we prefer to use Teece et al.’s definition of dynamic capabilities, as it is rigorous and widely used.

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B. Process of Dynamic Capabilities and Competitive Advantage Dynamic capabilities can enable firms to create new products and processes and respond to changing market conditions. Helfat [30] finds that research and development (R&D) together with complementary know-how and other assets are the main sources of dynamic capabilities to create new products and processes and respond to fast changing environments. Firms can enhance their competitive advantage through investment in internal R&D activities [34], through external R&D collaborations or both. Internal and external R&D sources are often combined by firms into networks as a means of enhancing their technological competences [11]. This raises a further issue, namely that coordination/integration capability is essential for a firm, not only to communicate internally [10], but also with external groups, such as collaborators, buyers, or suppliers [29], [40]. Thus, based on Teece et al.’s definition, a firm’s coordination capability can be regarded as representational of the organizational process of dynamic capabilities in this study. In fast changing technological environments, maintaining a culture of flexibility in adjusting a firm’s R&D direction becomes essential. Thus, the degree of autonomy enjoyed by the R&D department also forms a part of the process of dynamic capabilities based on Teece et al.’s definition. Denison [15] also argues that firms possessing a participative culture and a well-organized workplace outperform those that do not. An autonomous and participative R&D culture also helps to make an individual firm’s culture resistant to imitation because of the complexity of the firm’s “set of values, beliefs, assumptions, and symbols that define the way in which a firm conducts its business” (see [6, p. 657]). A firm, which is able to smoothly coordinate or integrate internal departments and/or external partners, is expected to have greater competitive advantage [10], [29], [40] because more effective coordination/integration processes allows the firm to respond to fast changing environments more quickly [64], as well as reducing transaction costs [67]. Moreover, Bowman and Ambrosini [10] assert that the level of autonomy in strategic business units affects a firm’s competitive advantage. An autonomous R&D department can also help firms to adjust their R&D resource allocations in response to changing technological or market developments faster than nonautonomous R&D departments, which in turn enhances their competitive advantage. Thus, we would expect, ceteris paribus, a more autonomous R&D department to enhance competitive advantage. In conclusion, coordination/integration capability and R&D department autonomy together reflect dynamic capabilities process. More specifically: Hypothesis 1: A firm’s better coordination/integration capability and more autonomous R&D departments (the process of dynamic capabilities) can help the firm to achieve better competitive advantage.

C. Position of Dynamic Capabilities and Competitive Advantage Firms responding to technological opportunities expect that these opportunities will provide a competitive advantage in

transforming their products and/or their production processes. Following [47], underutilized resources create managerial incentives for new capability creation. The accumulation of competencies therefore determines the possibility of responding to technological opportunities. As a result, the accumulation of resources or assets, such as technological assets (e.g., patents), complementary assets, financial assets, reputational assets, structural assets, institutional assets, or market assets, can be regarded as a firm’s position in terms of dynamic capabilities suggested by Teece et al. [64], which provides an ability to respond to technological opportunities. The organizational process, such as coordination/integration capabilities or autonomous R&D department culture, can help firms to better deploy and reconfigure internal and external R&D resources to accumulate technological competences either developing new products or improving production processes [65]. Such technological competences for developing new products or improving production processes are normally patented by firms and can be regarded as the position of dynamic capabilities suggested by Teece et al. [64]. As a result, these processes of dynamic capabilities can enhance a firms’ position of the dynamic capabilities, such as patents for new products or new production processes. Thus, we can hypothesize that a firm with better process of dynamic capabilities can increase its position of dynamic capabilities. Hypothesis 2: A firm’s coordination/integration capability and R&D department autonomy are positively associated with its accumulated competences to explore and exploit technological opportunities.

Technological competence refers to the firm’s ability to innovate. Furthermore, a firm’s accumulated technological competences, regarded as the position of dynamic capabilities, can explore or exploit technological opportunities in the fast changing environment, which in turn increase a firm’s performance or competitive advantage. Tushman and Anderson [65] assert that competence accumulation enables firms to respond to technological opportunities that lead to the transformation of their products and/or their production processes. Such new products or improved processes can be protected by patenting. DeCarolis and Deeds [13] suggest that patents as stocks of organizational knowledge can enhance a firm’s competitive advantage. Thus, patents can be used to assess a firm’s accumulated competences to explore and exploit technological opportunities which in turn form the position of dynamic capabilities. Hypothesis 3: The greater the number of accumulated competences (the position of dynamic capabilities) by a firm, the greater the firm competitive advantage.

D. Path of Dynamic Capabilities and Competitive Advantage Hamel and Prahalad [28] propose that the core business is composed of a number of core competencies, including core technologies. They conclude that a firm’s superior core technology can improve its core competence which in turn enhances the competitive advantage of its core business. According to the study in [40], a firm’s core business can influence the direction and speed of innovation. A long-term involvement in its core

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III. METHOD A. Sample Selection and Data Collection

Fig. 1. Technological competence and competitive advantage: a dynamic capability view.

business does not necessarily enhance radical innovative capabilities but may improve incremental innovative capabilities. However, in the long run, a firm with a highly concentrated and long-term involvement, particularly for R&D activities, in its core business can enhance a firm’s both radical and incremental innovative capabilities [40]. From the perspective of [64], we can interpret a firm’s core business as its path of dynamic capabilities. Teece et al. [64, p. 522] argue, in an echo of Penrose, that “Where a firm can go is a function of it current position and the paths ahead.” A firm’s past investment and its repertoire of resources and routines will constrain its future strategies and development. Equally, a firm’s current position or repertoire of resources is the accumulation of previous investments, i.e., path dependence. A firm’s core business represents a firm’s historical path dependence. Arthur [2] suggests that when a firm begins to devote resources to a particular technology, its competences are built around this technological specialization and early technological choices may then constrain future options for technology opportunities. When a firm invests in its primary core business for a period of time, the firm can accumulate additional competences related to its core business. The more focused is the core business of a firm, the greater familiarity of the firm’s trajectories on prior R&D, making it easier to integrate or reconfigure resources, which leads to greater competitive advantage. As a result, a firm’s path can determine its positional choices, which in turn influences whether a firm enjoys a competitive advantage. Therefore, in this research, we hypothesize that a firm’s path of dynamic capabilities has a positive relationship with its position of dynamic capabilities. Hypothesis 4: A firm’s core business (the path of dynamic capabilities) is positively associated with its accumulated competences (the position of dynamic capabilities).

In the next section, we investigate how the factors of technological competence in terms of dynamic capabilities (process, position, and path) affect a firm’s competitive advantage. We used the path model to test the direct impact and mediating effect of these three dimensions of dynamic capabilities on firm competitive advantage, as shown in Fig. 1.

We drew our sample firms for this study from the Taiwanese ICT industry. All firms in the sample were listed on the Taiwanese Stock Exchange and headquartered in Taiwan. Tradeonly service firms were excluded from our sample selection as they are less dependent on technological competence. As the majority of Taiwanese ICT firms went public after the mid1990s, we included only firms for whom data were available for a period of seven years or more. Consequently, we selected 415 potential firms, accounting for around 80% of Taiwanese market share in 2002. The survey was conducted in 2002. Out of the 415 firms targeted, 165 firms returned a completed questionnaire resulting in a 40% of response rate for this study. We also used secondary sources to gather easily available data such as patent stocks, sales, share of core business, and R&D intensity. This was collected via official government publications such as from the Taiwanese Ministry of Economic Affairs (MOEA) and via corporate financial statements such as those from the Securities & Futures Institute (SFI). B. Variable Measurement 1) Independent Variables and Mediators: As discussed earlier in Section II, a dynamic capability theoretically consists of three major dimensions: process, position, and path [64]. Although the concept of dynamic capabilities has been widely discussed in prior studies, measurement remains ill-defined [69]. Since this study attempts to investigate how technological competence affect a firm’s competitive advantage from the perspective of dynamic capabilities, we decided to employ the three dimensions of dynamic capabilities suggested by Teece et al. [64] to interpret a firm’s technological competence. Teece et al. [64] assert that organizational processes have three roles, including coordination/integration, learning, and reconfiguration. We measured coordination/integration capability by asking respondents to evaluate the extent of a firm’s coordination/integration with clients and other departments inside the firm between 1996 and 2002 using a five-point Likert scale. Moreover, in rapidly changing environments, the ability to sense the need to reconfigure a firm’s resources and to accomplish the necessary internal and external transformation becomes critical to the firm [1], [64]. An autonomous organizational R&D process can help firms to quickly respond to changes in the technological environment. We measured the autonomy of R&D decisions between 1996 and 2002 by the questionnaire. We equally weighted the coordination and autonomy as the indicator of process of dynamic capabilities. In addition to organizational processes, a firm’s specific assets also facilitate a firm’s strategic posture of competitive advantage. Since here we are interested in the relationship between technological competence and firm competitive advantage from the perspective of dynamic capabilities, we used technological assets to interpret the position of dynamic capabilities. There are many other measurements for a firm’s technological assets, such as expenditure flow [16]. However, prior studies suggest

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that expenditures are more like technology inputs instead of technological assets [40]. Technology input data only indicates how much a firm has invested in technology development but does not show the outcome of such efforts. Thus, technology output data, such as patents, might more appropriately illustrate a firm’s technological assets or competencies than technology input data. Moreover, a firm’s technological assets may be protected by intellectual property law [62]. While patents are a form of codified knowledge, Nonaka and Takeuchi [45] argue that there is a strong interaction between codified and tacit knowledge during the creation of new technological assets. As a result, patents may be an appropriate indicator for measuring a firm’s technological assets. Technological asset was measured by the number of Taiwanese patents held by the ICT firm between 1996 and 2002. The patent data were collected via a governmental database in MOEA and then standardized to compensate for variance in firms’ patent number. Path dependences determine a firm’s direction of future development. The notion of path dependences suggests that history matters [64]. Thus, the historical development of a firm can be employed as a measurement of the firm’s path dependences. As a proxy for this, we used the degree of a firm’s concentration on a core business as a measure for path dependences. The degree of a firm’s concentration on a core business was measured in two ways: the share of the largest core business in terms of sales and the longitude of core business in terms of years between 1996 and 2002. Data on core business share were collected in the SFI’s database while the longitude of core business was collected by our questionnaire. We used the natural logarithm term to measure core business share and a five-point Likert scale question to measure the longitude of core business. Share and longitude of core business together act as our measure of dynamic capabilities path. 2) Dependent Variable: The dependent variable in this study is a firm’s competitive advantage. Substantial empirical studies have assessed the persistence of various firm accounting performances as an indicator of sustainable competitive advantage [31]. Porter [49] also asserts that a firm’s competitive advantage is defined as above average profits in an industry. Thus, a firm’s competitive advantage is measured by its market performance in this research. Sales are widely accepted as an appropriate indicator for measuring a firm’s market performance in the industrial organization economics literature [52], [58]. Considering the antecedence–consequence nature of this research, we incorporated a time lag between dynamic capability and competitive advantage. Since the developing technological competences are time-consuming activities [43], we used a oneyear difference between the dependent variable and independent variables in this research. Thus, we measured a firm’s market performance by a firm’s sales in 2003. Sales data were obtained from the SFI database and then standardized to compensate for variance. 3) Control Variable: A firm’s internal R&D investment is observed as having impact on a firm’s performance in the market [23]. To investigate the net effect of dynamic capabilities on market performance, this study also controlled for the effect of a firm’s R&D investment. In this study, a firm’s R&D invest-

TABLE I CONSTRUCT DEFINITION AND MEASUREMENT

ment was measured by a seven-year average of R&D intensity (R&D expenditures as a percentage of sales) between 1996 and 2002 in this study. Industry differences also affect the impact of a firm’s technological competence on firm competitive advantage since competitive intensity and R&D activities vary across industries [37]. Industry difference was measured by types of core business instead of the SIC code. As a result, five subsectors of the ICT industry were identified, including semiconductors (13.9%), computers and peripherals (46.1%), optical electronics (12.7%), communications (6.1%), and others (21.2%). To control for industry difference, four dummy variables were created (i.e., industry semiconductors, industry computers, industry optical, and industry communications) and the subsector “others” was the base industry. Table I summarizes the definitions and measurement for constructs used in this study. C. Models Verification To best capture the theoretical interdependences between process, path, position, and competitive advantage as shown in Fig. 1, this study analyzed the data using structural equation modeling. This procedure allows for a fine-grained analysis of the hypothesized relationships within the context of the entire model. Structural equation modeling is an especially attractive choice when testing mediating variables [19]. Consequently, this study performed path analysis in LISREL for hypotheses testing. The path analysis procedure is common in studies in which a small sample size restricts the use of full structural equation models [12], [36]. IV. RESULTS AND ANALYSIS A. Descriptive Statistics and Correlations Table II provides basic information about the 165 valid sample firms in this study. It shows that the mean of competitive advantage (in terms of revenues in 2003) is US$206541897. The average R&D intensity (R&D expenditure as a percentage of sales) is 5.33%, which is lower than the average R&D intensity (7.2%) for OECD countries [46]. The result is consistent

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TABLE II DESCRIPTIVE STATISTICS AND CORRELATION RESULTS

with Taiwanese firms being manufacturing-oriented, which are inclined to invest less in R&D activities [14], [38]. There are five subsectors to Taiwan’s ICT industry, including semiconductors (13.9%), computer and peripherals (46.1%), optical electronics (12.7%), communications (6.1%), and other electronics (21.2%). The distribution of industries among the respondent firms, thus, resembles that of the sampling frame, suggesting the representative of the study population. Table II also shows the result of the correlation between all independent variables and dependent variables. Table II shows that competitive advantage has a positive relationship with dynamic capability “process” (β = 0.22, p < 0.01) and dynamic capability “position” (β = 0.52, p < 0.01). A number of constructs might have intercorrelations with each other but the coefficient is moderate. We tested for multicollinearity among dependent variable and independent variables by variance inflation factor (VIF). The VIFs of all variables are less than 2.6. It is suggested in [9] and [41] that if the largest VIF is greater than 10, then there is cause for concern. Our results suggest that little multicollinearity exists among the independent variables and dependent variable in our model. B. Path Analysis Results The path analysis results reveal that the overall disposition of the model fit index χ2(6) = 11.39, P = 0.077, goodness of fit index = 0.99, adjusted goodness of fit index = 0.89, root mean square error of approximation = 0.071, normed fit index = 0.96, and comparative fit index = 0.98. These indicators indicate that the overall disposition of the model fit indexes is quite good.1 Table III presents the overall model fit and the test of each hypothesis. The supported hypotheses include Hypothesis 1 (process has a positive association with competitive advantage) (β = 0.13, p < 0.01); Hypothesis 2 (process has a positive association with position) (β = 0.18, p < 0.01); and Hypothesis 3 (position 1 The model fit indexes have the following overall disposition: the P value must exceed 0.05, the GFI and AGFI exceed 0.9, the RMSEA is below 0.08, and the NFI, CFI exceed 0.9 (Bagozzi and Yi, 1988; Hair et al., 2006). Generally, the overall disposition of the model fit indexes in this study is good.

TABLE III HYPOTHESIS TESTING RESULTS

has a positive association with competitive advantage) (β = 0.49, p < 0.01). However, Hypothesis 4 (path has a positive association with position) (β = 0.07, p > 0.05) was not supported (see Table III). Both control variables were not associated with competitive advantage (β = −0.07, 0.22, 0.23, −0.14, p > 0.05 for industries; β = −0.03, p > 0.05 for R&D). The results indicate that position has a partial mediating effect on the relationship between process and firm competitive advantage whereas position has no mediating effect on the relationship between path and competitive advantage. V. DISCUSSION Our results show that attributes of dynamic capabilities influence a technological firm’s competitive advantage in different ways. In the following, we discuss the empirical findings further. A. Decoding Dynamic Capabilities While prior studies assert that dynamic capabilities affect a firm’s competitive advantage [20], [64], these studies rarely

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investigate what and how determinants of dynamic capabilities influence a firm’s competitive advantage. This leaves the relationship between dynamic capabilities and competitive advantage in a black box. Thus, our research attempts to open this black box. The findings suggest that not all three dimensions of dynamic capabilities affect a firm’s competitive advantage in the same way. The process and position of dynamic capabilities are found to have direct positive impacts on competitive advantage while the position of dynamic capabilities mediates the relationship between the process of dynamic capabilities and firm competitive advantage. Our results provide a different look at dynamic capabilities. While prior empirical studies treat dynamic capabilities as a construct [21], [69], our research suggests that breaking down dynamic capabilities into three dimensions as defined by Teece et al. [64] can better explain the relationship between technological competence and competitive advantage. Firms with better process and position of dynamic capabilities may enjoy greater competitive advantage, as measured in our study through sales performance. As we further examine the mediation model of dynamic capabilities, we find that the position of dynamic capabilities mediates the relationship between the process of dynamic capabilities and competitive advantage but does not mediate the relationship between the path of dynamic capabilities and competitive advantage. This implies that organizational process can help to accumulate a firm’s asset position, which in turn enhances its competitive advantage. A better coordination/integration capability may help firms to access resources or knowledge internally and externally, making them more successful in accumulating their competences as well as asset position. As a result, the firms can further improve their competitive advantage with these accumulated competences or asset position. This finding is partially consistent with the earlier literature that asset or resource stock accumulation is an important source of sustainable competitive advantage [16]. More importantly, our finding, that dynamic capabilities process not only helps firms to accumulate resources or assets but also improves competitive advantage, shows the significant role played by these processes in high velocity environments (such as in product development processes as proposed by Eisenhardt and Martin [20]). The results also support Helfat et al.’s argument that organization can create positions of a resource base (position) by acquiring new resources externally with adequate managerial and organizational processes (process) [31]. Intriguingly, our findings show that position has no mediating effect on the relationship between path and firm competitive advantage. A link between path dependence and competitive advantage is not found in our study. This was surprising as prior RBV studies have suggested path dependence as a source of competitive advantage [8]. However, some studies suggest that path dependence can jeopardize a firm’s competence accumulation when a firm’s commitment to existing competencies may jeopardize its ability to acquire new resources or capabilities [2], [35]. Our results suggest that path dependence cannot enhance firm competitive advantage via accumulating position particularly in a fast changing environment.

More broadly, our research identifies how technological competences as interpreted by the three dimensions of dynamic capabilities affect a firm’s competitive advantage. In contrast to other studies, we have not viewed dynamic capabilities as a single construct. Instead, we have sought a more nuanced approach. The process of dynamic capabilities can affect a firm’s competitive advantage either directly or indirectly via the position of dynamic capabilities. The position of dynamic capabilities not only has a direct impact on competitive advantage but also plays a partially mediating role for the process of dynamic capabilities on competitive advantage. The aforementioned results moderately confirm our prediction that the different dimensions of dynamic capabilities impact on competitive advantage in different ways. Thus, our attempt to explore the black box of dynamic capabilities is preliminarily and conceptually verified. B. Competitive Advantage Explained by Dynamic Capabilities Another contribution of this research is that we explain how dynamic capabilities affect a firm’s competitive advantage. In fast changing environments, technological change is the most significant factor affecting a firm’s competitive advantage. Our research helps high-tech firms to identify what kinds of dynamic capabilities can most achieve competitive advantage. As shown in our findings, organizational processes such as coordination capability and autonomous R&D culture can improve a firm’s competitive advantage. Firms with strong coordination capabilities can access and allocate resources at lower costs. Strong coordination capabilities with internal departments or external partners can also help firms to respond to fast changing environments with greater flexibility. Moreover, an autonomous R&D culture facilitates an organizational culture which can respond and adjust to the environmental change quickly. Firms without such an autonomous R&D culture may find it difficult to explore or exploit technological opportunities, which in turn may influence competitive advantage. Furthermore, the accumulated technological competences, representing dynamic capabilities position in this paper, are found to enhance a firm’s competitive advantage. The accumulation of technological competencies determines the possibility of responding to technological opportunities, which in turn help to determine a firm’s competitive advantage. As a result, a higher level of accumulated technological competences leads to a higher possibility of responding technological opportunities and then to a better firm competitive advantage. Nevertheless, while prior studies suggest that a firm’s highly concentrated and long-term focus in a core business, can influence its direction and speed of innovation [40], which in turn enhances the firm’s competitive advantage, our research finds no significant relationship between the degree of core business and competitive advantage. The findings suggest that a highly concentrated and long-term focused core business will not enhance or decrease a firm’s competitive advantage in fast changing industries such as the ICT industry. VI. CONCLUSION Empirical results from this study contribute to our understanding of the relationships between three determinants of dynamic

HUANG et al.: HOW DOES A TECHNOLOGICAL FIRM DEVELOP ITS COMPETITIVE ADVANTAGE? A DYNAMIC CAPABILITY PERSPECTIVE

capabilities and competitive advantage. A number of significant findings and implications stem from our empirical results. First, adopting a more holistic view by combining these three determinants of dynamic capabilities (i.e., process, position, and path) has yielded new insights. For instance, we identify that dynamic capabilities affect a firm’s competitive advantage in subtle ways. The process and position of dynamic capabilities will enhance a firm’s competitive advantage directly while the position of dynamic capabilities partially mediates the relationship between the process of dynamic capabilities and firm competitive advantage. No significant effect of the path of dynamic capabilities on firm competitive advantage is observed in our research. These particular findings would not have emerged if we had adopted a more conventional approach, i.e., treating dynamic capability as a single construct. These findings suggest that the three determinants of dynamic capabilities affect a firm’s competitive advantage not only simultaneously but also sequentially. Furthermore, by differentiating between three aspects of dynamic capabilities, our research provides an operationalized definition for measuring dynamic capabilities in future empirical research. Second, our results have implications in terms of business practitioners. Paying attention to coordination/integration capabilities or developing a more autonomous R&D culture can help firms to enhance their competitive advantage both directly and indirectly via increasing accumulated technological competences. The implication for Taiwanese ICT firms is that firms should be encouraged to improve their coordination/integration capabilities or adopt a more autonomous R&D culture to increase accumulated technological competences, which in turn will enhance their competitive advantage. Focusing simply on building the firm’s core businesses may not be sufficient to enhance a firm’s competitive advantage. Building up superior organizational processes can enhance a firm’s competitive advantage both directly and indirectly via accumulating position of resources. This finding provides managerial insight for business practitioners. There are a number of limitations in this research. First, our research only explains how dynamic capabilities help to develop technological competences. A firm’s dynamic capabilities may also help to develop other competences, such as marketing competences. Future studies are encouraged to investigate whether dynamic capabilities can help to develop competences in other non-technological areas. Second, we have adopted only Teece et al.’s [64] definitions of dynamic capabilities in this study but we recognize that other scholars, such as Eisenhardt and Martin [20] and Winter [68], offer competing variations. Future research could incorporate other definitions of dynamic capabilities to helpfully assess the robustness of the findings. Third, the questionnaire relies on the ability of participants to recall over the period 1996–2002 and this introduces a possible weakness in the accuracy with which the variables are measured. Finally, the three determinants of dynamic capabilities, process, position, and path, may have other possible interrelationships other than the proposed relationships in this research. Future studies are also encouraged to investigate what other possible relationships exist among these three dimensions of dynamic capabilities.

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Kuo-Feng Huang received the Ph.D. degree from Royal Holloway, University of London, Surrey, U.K. He is currently an Associate Professor in the Department of Business Administration at National Chengchi University, Taipei, Taiwan. His recent research has been published in the IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, the Journal of Business Research, the Asia Pacific Journal of Management, Management International Review, the Journal of Technology Transfer, and the Journal of Engineering and Technology Management. He has received the national research funding from National Science Council in Taiwan in 2006. He is currently the Area Editor in strategic management for the Harvard Business Review, the traditional Chinese version. His main research interests include strategic management as well as technology and innovation management.

Lei-Yu Wu received the Ph.D. degree from National Chengchi University, Taipei, Taiwan. He is currently a Professor in the Department of Business Administration, National Chengchi University. His research has been published in the Journal of Business Logistic, Entrepreneurship Theory and Practice, Information & Management, Journal of Business Research, Journal of Service Management, Journal of Engineering and Technology Management, Management Decision, etc. His research interests include strategic management, entrepreneurship, and international marketing.

HUANG et al.: HOW DOES A TECHNOLOGICAL FIRM DEVELOP ITS COMPETITIVE ADVANTAGE? A DYNAMIC CAPABILITY PERSPECTIVE

Romano Dyerson received the Ph.D. degree from Heriot Watt University, Edinburgh, Scotland. He is currently a Senior Lecturer in strategy and economics at the School of Management, Royal Holloway, University of London, Surrey, U.K. He was a Research Fellow at the Centre for Business Strategy, London Business School. Much of his work has been at the juncture of strategic and technology management. Past papers have been published in journals such as the Journal of Management Studies, Organisational Studies, Technology Analysis and Strategic Management, and the International Journal of Innovation Management. His research interests include the general theme of innovation and technological change practices in both small and large firms.

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Chun-Fu Chen received the Ph.D. degree from National Chiao Tung University, Hsinchu, Taiwan. He is currently an Associate Professor in the National Taipei College of Business, Taipei, Taiwan. He is also involved in many national research projects and presents at academic conferences. He has published in Asian Survey, Electoral Studies, The Asian Pacific Education Researcher, Journal Hospitality, Leisure, Sport and Tourism Education, the International Journal of Management, and other journals. His current research interests include the areas of leisure behaviors, management of innovation, and strategic management.