Absorptive Capacity, R&D Intensity and Innovation Results

Absorptive Capacity, R&D Intensity and Innovation Results

Jorge Cruz-González (Universidad Complutense de Madrid, Spain) and Miriam Delgado-Verde (Universidad Complutense de Madrid, Spain)
DOI: 10.4018/978-1-61520-875-3.ch007
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Abstract

The dynamic capabilities Perspective has emerged in the last decade to improve the explanatory power of the Resource-Based View of the firm with regard to obtaining sustainable competitive advantage by firms operating in rapid change environments. However, some aspects of its conceptualization, especially in relation to the factors that make up them, do not appear to be entirely clear. Accordingly, the aim of the present chapter is to provide a conceptual synthesis of the construct, trying to identify the key factors involved in the development of dynamic capabilities by firms. Based on a sample of 177 companies around the world operating in the software industry, the authors derive an empirical study. Their findings suggest that firms that jointly develop absorptive capacity and innovative capacity achieve better results.
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Introduction

Generally, the main paradigms that try to explain how companies could obtain higher revenues derived from a sustainable competitive advantage are the Competitive Forces Approach (Porter, 1981) and the Resource-Based View (Barney, 1991).

The first perspective, which is based on Industrial Economy, argues that the structure of the industry within which firms operate, fundamental unit of analysis of this theory, determines the possibility of obtaining higher economic returns (Teece, Pisano & Shuen, 1997). The character and the action of five competitive forces determine the degree of attractiveness of the industry (Porter, 1981). According to this perspective, called Industry Effect or Model based on the Market Power, the strategic alternatives of the firms are limited to the research, selection and taking advantage of the most attractive industries, that is to say, in those industries where there is some imperfection in the product market.

The main criticism of the Competitive Forces Approach comes from the study conducted by Rumelt (1991). The author empirically supports that the differences between the profitability of firms within the same industry are greater than the differences between the profitability of those operating in different industrial sectors, supporting the reasoning of the studies that view the firm as a set of heterogeneous resources and capabilities.

On the other hand, the second perspective, so-called Resource-Based View, argues that the “VRIN” resources (Valuable, Rare, Inimitable and Non sustainable: Barney, 1991) of the firms enable them to obtain higher economic returns (Teece et al., 1997; Eisenhardt & Martin, 2000). Therefore, the resources and capabilities that generate heterogeneity allow firms to obtain a sustainable competitive advantage (Barney, 1991; Nelson, 1991). In addition, if the complementariness between resources and related systems of activity occurs, its potential to generate competitive advantage is increased (Porter, 1996), rising the probability to obtain quasi-rents. The company is considered as a set of resources and capabilities and, therefore, according to this theory, the possible strategic alternatives for the company consist on obtaining the resources and developing the key capabilities that will allow to deploy value-creation strategies at a lower cost than their contribution to the above mentioned creation of value (Makadok, 2001), therefore, taking advantage of the possible imperfections in the factor market.

In this sense, we must differentiate the concept of resources, the basic unit of analysis of this theory, understood as the set of factors or assets which the company possesses and controls (Barney, 1991), and capabilities, defined as the abilities and organizational competences that allow to suitably develop an activity from the combination and coordination of the individual available resources (Grant, 1996). We assume, therefore, a hierarchical conception based on the level of aggregation and coordination of both terms.

The criticism regarding to the Resource-Based View, as well as the Competitive Forces Approach, are focused on its static character, and the sustainability of the competitive advantage, which derives from the assumptions raised by both theories, is considered improbable in dynamic environments (Eisenhardt & Martin, 2000). Indeed, resources accumulation, or to operate in an “attractive” industry, is not sufficient to achieve and, especially, maintain sustainable competitive advantage in the face of changes that could affect either factor or product markets.

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