IDEAS home Printed from https://ideas.repec.org/a/bla/stratm/v41y2020i9p1595-1627.html
   My bibliography  Save this article

Capability interactions and adaptation to demand‐side change

Author

Listed:
  • Tang Wang
  • Vikas A. Aggarwal
  • Brian Wu

Abstract

Research summary We examine how interactions among a firm's capabilities influence the extent and direction of firm adaptation under conditions of demand‐side change. Our empirical context is the U.S. defense industry, within which we study firms receiving defense‐related Small Business Innovation Research (SBIR) awards around September 11, 2001, an event which constituted an exogenous demand‐side shock in which technology‐related preferences of customers were reshuffled. We find that under demand‐side change, preexisting customer relationships have a double‐edged effect: They facilitate “extension‐based” adaptation when interacted with technology capabilities experiencing a decline in customer preferences, and they hinder “novelty‐based” adaptation when interacted with technology capabilities experiencing an increase in such preferences. We also find that both types of technological capabilities together facilitate adaptation along the extension and novelty paths. Managerial summary Demand‐side change, in which customer preferences for particular technologies are reshuffled, occurs in many industry settings. A deeper understanding of the factors shaping firm adaptation under this form of change can influence managers' decisions to implement strategies to plan for and react to such change. Using a sample of firms receiving defense‐related SBIR awards around September 11, 2001, we show that the customer relationships a firm develops prior to demand‐side change can have a double‐edged effect on firm adaptation. Such relationships facilitate “extension‐based” adaptation when combined with technology capabilities declining in customer preferences and hinder “novelty‐based” adaptation when combined with technology capabilities increasing in customer preferences. In addition, the combination of the two technological capability types facilitates adaptation along both paths.

Suggested Citation

  • Tang Wang & Vikas A. Aggarwal & Brian Wu, 2020. "Capability interactions and adaptation to demand‐side change," Strategic Management Journal, Wiley Blackwell, vol. 41(9), pages 1595-1627, September.
    • Handle: RePEc:bla:stratm:v:41:y:2020:i:9:p:1595-1627
    DOI: 10.1002/smj.3137
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/smj.3137
    Download Restriction: no
    File URL: https://libkey.io/10.1002/smj.3137?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Atul Nerkar & Peter W. Roberts, 2004. "Technological and product‐market experience and the success of new product introductions in the pharmaceutical industry," Strategic Management Journal, Wiley Blackwell, vol. 25(8‐9), pages 779-799, August.
    2. Mary Tripsas & Giovanni Gavetti, 2000. "Capabilities, cognition, and inertia: evidence from digital imaging," Strategic Management Journal, Wiley Blackwell, vol. 21(10‐11), pages 1147-1161, October.
    3. Eric von Hippel, 1986. "Lead Users: A Source of Novel Product Concepts," Management Science, INFORMS, vol. 32(7), pages 791-805, July.
    4. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    5. Sendil K Ethiraj & Narayan Ramasubbu & M.S. Krishnan, 2012. "Does complexity deter customer‐focus?," Strategic Management Journal, Wiley Blackwell, vol. 33(2), pages 137-161, February.
    6. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    7. Vikas A. Aggarwal & Brian Wu, 2015. "Organizational Constraints to Adaptation: Intrafirm Asymmetry in the Locus of Coordination," Organization Science, INFORMS, vol. 26(1), pages 218-238, February.
    8. Mahka Moeen, 2017. "Entry into Nascent Industries: Disentangling a Firm's Capability Portfolio at the Time of Investment Versus Market Entry," Strategic Management Journal, Wiley Blackwell, vol. 38(10), pages 1986-2004, October.
    9. Sendil K. Ethiraj & Prashant Kale & M. S. Krishnan & Jitendra V. Singh, 2005. "Where do capabilities come from and how do they matter? A study in the software services industry," Strategic Management Journal, Wiley Blackwell, vol. 26(1), pages 25-45, January.
    10. Bart S. Vanneste & Phanish Puranam, 2010. "Repeated Interactions and Contractual Detail: Identifying the Learning Effect," Organization Science, INFORMS, vol. 21(1), pages 186-201, February.
    11. Lori Rosenkopf & Patia McGrath, 2011. "Advancing the Conceptualization and Operationalization of Novelty in Organizational Research," Organization Science, INFORMS, vol. 22(5), pages 1297-1311, October.
    12. Mowery, David & Rosenberg, Nathan, 1993. "The influence of market demand upon innovation: A critical review of some recent empirical studies," Research Policy, Elsevier, vol. 22(2), pages 107-108, April.
    13. Erwin Danneels & Rajesh Sethi, 2011. "New Product Exploration Under Environmental Turbulence," Organization Science, INFORMS, vol. 22(4), pages 1026-1039, August.
    14. Sarah Kaplan & Keyvan Vakili, 2015. "The double-edged sword of recombination in breakthrough innovation," Strategic Management Journal, Wiley Blackwell, vol. 36(10), pages 1435-1457, October.
    15. Olav Sorenson, 2000. "Letting the market work for you: an evolutionary perspective on product strategy," Strategic Management Journal, Wiley Blackwell, vol. 21(5), pages 577-592, May.
    16. John K. Mawdsley & Deepak Somaya, 2018. "Demand‐side strategy, relational advantage, and partner‐driven corporate scope: The case for client‐led diversification," Strategic Management Journal, Wiley Blackwell, vol. 39(7), pages 1834-1859, July.
    17. David J. Teece, 2007. "Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance," Strategic Management Journal, Wiley Blackwell, vol. 28(13), pages 1319-1350, December.
    18. Robert D. Dewar & Jane E. Dutton, 1986. "The Adoption of Radical and Incremental Innovations: An Empirical Analysis," Management Science, INFORMS, vol. 32(11), pages 1422-1433, November.
    19. Shahzad (Shaz) Ansari & Raghu Garud & Arun Kumaraswamy, 2016. "The disruptor's dilemma: TiVo and the U.S. television ecosystem," Strategic Management Journal, Wiley Blackwell, vol. 37(9), pages 1829-1853, September.
    20. Mary Tripsas, 1997. "Unraveling The Process Of Creative Destruction: Complementary Assets And Incumbent Survival In The Typesetter Industry," Strategic Management Journal, Wiley Blackwell, vol. 18(S1), pages 119-142, July.
    21. Rajshree Agarwal & Constance E. Helfat, 2009. "Strategic Renewal of Organizations," Organization Science, INFORMS, vol. 20(2), pages 281-293, April.
    22. Prithwiraj Choudhury & Do Yoon Kim, 2019. "The ethnic migrant inventor effect: Codification and recombination of knowledge across borders," Strategic Management Journal, Wiley Blackwell, vol. 40(2), pages 203-229, February.
    23. Giada Di Stefano & Alfonso Gambardella & Gianmario Verona, 2012. "Technology Push and Demand Pull Perspectives in Innovation Studies: Current Findings and Future Research Directions," Post-Print hal-00696607, HAL.
    24. Wesley M. Cohen & Richard R. Nelson & John P. Walsh, 2003. "Links and Impacts: The Influence of Public Research on Industrial R&D," Chapters, in: Aldo Geuna & Ammon J. Salter & W. Edward Steinmueller (ed.), Science and Innovation, chapter 4, Edward Elgar Publishing.
    25. Bennet A. Zelner, 2009. "Using simulation to interpret results from logit, probit, and other nonlinear models," Strategic Management Journal, Wiley Blackwell, vol. 30(12), pages 1335-1348, December.
    26. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
    27. Ron Adner & Rahul Kapoor, 2010. "Value creation in innovation ecosystems: how the structure of technological interdependence affects firm performance in new technology generations," Strategic Management Journal, Wiley Blackwell, vol. 31(3), pages 306-333, March.
    28. Di Stefano, Giada & Gambardella, Alfonso & Verona, Gianmario, 2012. "Technology push and demand pull perspectives in innovation studies: Current findings and future research directions," Research Policy, Elsevier, vol. 41(8), pages 1283-1295.
    29. Uriel Stettner & Dovev Lavie, 2014. "Ambidexterity under scrutiny: Exploration and exploitation via internal organization, alliances, and acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 1903-1929, December.
    30. Ito, Harumi & Lee, Darin, 2005. "Assessing the impact of the September 11 terrorist attacks on U.S. airline demand," Journal of Economics and Business, Elsevier, vol. 57(1), pages 75-95.
    31. Ron Adner & Daniel Snow, 2010. "Old technology responses to new technology threats: demand heterogeneity and technology retreats," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(5), pages 1655-1675, October.
    32. Duchin, Ran & Ozbas, Oguzhan & Sensoy, Berk A., 2010. "Costly external finance, corporate investment, and the subprime mortgage credit crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 418-435, September.
    33. Joost Rietveld & J. P. Eggers, 2018. "Demand Heterogeneity in Platform Markets: Implications for Complementors," Organization Science, INFORMS, vol. 29(2), pages 304-322, April.
    34. Daniel W. Elfenbein & Todd Zenger, 2017. "Creating and Capturing Value in Repeated Exchange Relationships: The Second Paradox of Embeddedness," Organization Science, INFORMS, vol. 28(5), pages 894-914, October.
    35. Giovanni Dosi, 2000. "Sources, Procedures, and Microeconomic Effects of Innovation," Chapters, in: Innovation, Organization and Economic Dynamics, chapter 2, pages 63-114, Edward Elgar Publishing.
    36. Mary Tripsas, 2008. "Customer preference discontinuities: a trigger for radical technological change," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(2-3), pages 79-97.
    37. Brian Wu & Zhixi Wan & Daniel A. Levinthal, 2014. "Complementary assets as pipes and prisms: Innovation incentives and trajectory choices," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1257-1278, September.
    38. Laurence Capron & Will Mitchell, 2009. "Selection Capability: How Capability Gaps and Internal Social Frictions Affect Internal and External Strategic Renewal," Organization Science, INFORMS, vol. 20(2), pages 294-312, April.
    39. Mawdsley, John Kenneth & Somaya, Deepak, 2018. "Demand-Side Strategy, Relational Advantage and Partner-Driven Corporate Scope: The Case for Client-Led Diversification," HEC Research Papers Series 1252, HEC Paris.
    40. Constance E. Helfat & Marvin B. Lieberman, 2002. "The birth of capabilities: market entry and the importance of pre-history," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(4), pages 725-760, August.
    41. Atul Nerkar, 2003. "Old Is Gold? The Value of Temporal Exploration in the Creation of New Knowledge," Management Science, INFORMS, vol. 49(2), pages 211-229, February.
    42. Aija Leiponen & Constance E. Helfat, 2010. "Innovation objectives, knowledge sources, and the benefits of breadth," Strategic Management Journal, Wiley Blackwell, vol. 31(2), pages 224-236, February.
    43. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
    44. J. P. Eggers & Sarah Kaplan, 2009. "Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change," Organization Science, INFORMS, vol. 20(2), pages 461-477, April.
    45. Anne Parmigiani & Will Mitchell, 2009. "Complementarity, capabilities, and the boundaries of the firm: the impact of within‐firm and interfirm expertise on concurrent sourcing of complementary components," Strategic Management Journal, Wiley Blackwell, vol. 30(10), pages 1065-1091, October.
    46. Akbar Zaheer & N. Venkatraman, 1995. "Relational governance as an interorganizational strategy: An empirical test of the role of trust in economic exchange," Strategic Management Journal, Wiley Blackwell, vol. 16(5), pages 373-392.
    47. Gautam Ahuja & Curba Morris Lampert & Vivek Tandon, 2014. "Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks," Organization Science, INFORMS, vol. 25(3), pages 653-669, June.
    48. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and the Sustainability of Competitive Advantage: Reply," Management Science, INFORMS, vol. 35(12), pages 1514-1514, December.
    49. Constance E. Helfat, 1997. "Know‐how and asset complementarity and dynamic capability accumulation: the case of r&d," Strategic Management Journal, Wiley Blackwell, vol. 18(5), pages 339-360, May.
    50. Guangliang Ye & Richard L. Priem & Abdullah A. Alshwer, 2012. "Achieving Demand-Side Synergy from Strategic Diversification: How Combining Mundane Assets Can Leverage Consumer Utilities," Organization Science, INFORMS, vol. 23(1), pages 207-224, February.
    51. Gino Cattani, 2005. "Preadaptation, Firm Heterogeneity, and Technological Performance: A Study on the Evolution of Fiber Optics, 1970–1995," Organization Science, INFORMS, vol. 16(6), pages 563-580, December.
    52. J.P. Eggers, 2012. "All experience is not created equal: learning, adapting, and focusing in product portfolio management," Strategic Management Journal, Wiley Blackwell, vol. 33(3), pages 315-335, March.
    53. Maurizio Zollo & Jeffrey J. Reuer, 2010. "Experience Spillovers Across Corporate Development Activities," Organization Science, INFORMS, vol. 21(6), pages 1195-1212, December.
    54. Nathan R. Furr & Daniel C. Snow, 2015. "Intergenerational Hybrids: Spillbacks, Spillforwards, and Adapting to Technology Discontinuities," Organization Science, INFORMS, vol. 26(2), pages 475-493, April.
    55. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    56. Nils Stieglitz & Klaus Heine, 2007. "Innovations and the role of complementarities in a strategic theory of the firm," Strategic Management Journal, Wiley Blackwell, vol. 28(1), pages 1-15, January.
    57. Constance E. Helfat & Margaret A. Peteraf, 2015. "Managerial cognitive capabilities and the microfoundations of dynamic capabilities," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 831-850, June.
    58. Glenn Hoetker, 2007. "The use of logit and probit models in strategic management research: Critical issues," Strategic Management Journal, Wiley Blackwell, vol. 28(4), pages 331-343, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liang Chen & Pengxiang Zhang & Sali Li & Scott F. Turner, 2022. "Growing pains: The effect of generational product innovation on mobile games performance," Strategic Management Journal, Wiley Blackwell, vol. 43(4), pages 792-821, April.
    2. Stevenson, Regan & Allen, Jared & Wang, Tang, 2022. "Failed but validated? The effect of market validation on persistence and performance after a crowdfunding failure," Journal of Business Venturing, Elsevier, vol. 37(2).
    3. Paola Zanella & Paola Cillo & Gianmario Verona, 2022. "Whatever you want, whatever you like: How incumbents respond to changes in market information regimes," Strategic Management Journal, Wiley Blackwell, vol. 43(7), pages 1258-1286, July.
    4. Ping Chen, 2023. "The Effect of Value Creation on Startups Performance in the Digital Environment: Evidence from Chinese Digital Startups," Sustainability, MDPI, vol. 15(5), pages 1-18, February.
    5. Somaya, Deepak & You, Jingya, 2024. "Scalability, venture capital availability, and unicorns: Evidence from the valuation and timing of IPOs," Journal of Business Venturing, Elsevier, vol. 39(1).
    6. Cillo, Paola & Priem, Richard L. & Verona, Gianmario & Zanella, Paola, 2021. "Consumer-CEO interaction as catalyst for business model innovation in established firms," Journal of Business Research, Elsevier, vol. 131(C), pages 241-253.
    7. Jacques Bughin & Francis Hinterman & Sybille Berjoan, 2022. "A Good Crisis (not) Wasted: How Exploiting and Expanding Dynamic Capabilities Shape Corporate Performance During the Covid Pandemic," Working Papers TIMES² WP2022-051, ULB -- Universite Libre de Bruxelles.
    8. Karen Schnatterly & Felipe Calvano & John P. Berns & Chaoqun Deng, 2021. "The effects of board expertise‐risk misalignment and subsequent strategic board reconfiguration on firm performance," Strategic Management Journal, Wiley Blackwell, vol. 42(11), pages 2162-2191, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mahka Moeen & Will Mitchell, 2020. "How do pre‐entrants to the industry incubation stage choose between alliances and acquisitions for technical capabilities and specialized complementary assets?," Strategic Management Journal, Wiley Blackwell, vol. 41(8), pages 1450-1489, August.
    2. Gianluigi Giustiziero & Aseem Kaul & Brian Wu, 2019. "The Dynamics of Learning and Competition in Schumpeterian Environments," Organization Science, INFORMS, vol. 30(4), pages 668-693, July.
    3. Ansari, Shahzad (Shaz) & Krop, Pieter, 2012. "Incumbent performance in the face of a radical innovation: Towards a framework for incumbent challenger dynamics," Research Policy, Elsevier, vol. 41(8), pages 1357-1374.
    4. Nilanjana Dutt & Will Mitchell, 2020. "Searching for knowledge in response to proximate and remote problem sources: Evidence from the U.S. renewable electricity industry," Strategic Management Journal, Wiley Blackwell, vol. 41(8), pages 1412-1449, August.
    5. J. P. Eggers & Sarah Kaplan, 2009. "Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change," Organization Science, INFORMS, vol. 20(2), pages 461-477, April.
    6. Corinne A. Coen & Catherine A. Maritan, 2011. "Investing in Capabilities: The Dynamics of Resource Allocation," Organization Science, INFORMS, vol. 22(1), pages 99-117, February.
    7. Shinjinee Chattopadhyay & Janet Bercovitz, 2020. "When one door closes, another door opens … for some: Evidence from the post‐TRIPS Indian pharmaceutical industry," Strategic Management Journal, Wiley Blackwell, vol. 41(6), pages 988-1022, June.
    8. Constance E. Helfat & Aseem Kaul & David J. Ketchen & Jay B. Barney & Olivier Chatain & Harbir Singh, 2023. "Renewing the resource‐based view: New contexts, new concepts, and new methods," Strategic Management Journal, Wiley Blackwell, vol. 44(6), pages 1357-1390, June.
    9. Mahka Moeen, 2017. "Entry into Nascent Industries: Disentangling a Firm's Capability Portfolio at the Time of Investment Versus Market Entry," Strategic Management Journal, Wiley Blackwell, vol. 38(10), pages 1986-2004, October.
    10. M. Lourdes Sosa, 2011. "From Old Competence Destruction to New Competence Access: Evidence from the Comparison of Two Discontinuities in Anticancer Drug Discovery," Organization Science, INFORMS, vol. 22(6), pages 1500-1516, December.
    11. Dongil D. Keum, 2020. "Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities," Strategic Management Journal, Wiley Blackwell, vol. 41(2), pages 175-197, February.
    12. Giovanni. Gavetti & Daniel A. Levinthal, 2004. "50th Anniversay Article: The Strategy Field from the Perspective of Management Science: Divergent Strands and Possible Integration," Management Science, INFORMS, vol. 50(10), pages 1309-1318, October.
    13. Mahka Moeen & Rajshree Agarwal & Sonali K. Shah, 2020. "Building Industries by Building Knowledge: Uncertainty Reduction over Industry Milestones," Strategy Science, INFORMS, vol. 5(3), pages 218-244, September.
    14. April M. Franco & MB Sarkar & Rajshree Agarwal & Raj Echambadi, 2009. "Swift and Smart: The Moderating Effects of Technological Capabilities on the Market Pioneering-Firm Survival Relationship," Management Science, INFORMS, vol. 55(11), pages 1842-1860, November.
    15. Mahka Moeen & Rajshree Agarwal, 2017. "Incubation of an industry: Heterogeneous knowledge bases and modes of value capture," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 566-587, March.
    16. J. P. Eggers, 2016. "Reversing course: Competing technologies, mistakes, and renewal in flat panel displays," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1578-1596, August.
    17. Brian Wu & Zhixi Wan & Daniel A. Levinthal, 2014. "Complementary assets as pipes and prisms: Innovation incentives and trajectory choices," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1257-1278, September.
    18. Jaideep Anand & Raffaele Oriani & Roberto S. Vassolo, 2010. "Alliance Activity as a Dynamic Capability in the Face of a Discontinuous Technological Change," Organization Science, INFORMS, vol. 21(6), pages 1213-1232, December.
    19. Maria Chiara Di Guardo & Kathryn Rudie Harrigan & Elona Marku, 2019. "M&A and diversification strategies: what effect on quality of inventive activity?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(3), pages 669-692, September.
    20. Anavir Shermon & Mahka Moeen, 2022. "Zooming in or zooming out: Entrants' product portfolios in the nascent drone industry," Strategic Management Journal, Wiley Blackwell, vol. 43(11), pages 2217-2252, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stratm:v:41:y:2020:i:9:p:1595-1627. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/0143-2095 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.