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THESIS
FINAL
Innovative ambidexterity in small and medium-sized firms:
The role of external networks and absorptive capacity.
Faculty of Economics and Business
Executive Programme in Management Studies Strategy Track
Supervisor: Dr. Dipl.-Wirt.-Ing. S. Kortmann September 2014 – March 2015
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Statement of Originality
This document is written by Student Bjorn Borgers who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Table of content
Abstract ... 4 1. Introduction ... 5 2. Literature overview ... 8 2.1 Innovative Ambidexterity ... 9 2.2 External Networks ... 12 2.3 Absorptive capacity ... 15 3. Theoretical framework ... 173.1 External networks and Innovative Ambidexterity ... 17
3.2 Absorptive Capacity, External Networks and Innovative Ambidexterity ... 18
3.3 Firm size ... 20
4. Methodology ... 22
4.1 Data collection and sample ... 22
4.2 Measures ... 22
4.2.1 Dependent variable: Innovative ambidexterity ... 23
4.2.2 Independent variable: Absorptive capacity ... 23
4.2.3 Independent variable: External Networks ... 24
4.2.4 Control variables ... 25
5. Data analyses and Results ... 26
5.1 Data analyses ... 26
5.2 Results ... 27
6. Discussion ... 33
6.2 Limitations and future research ... 36
6.3 Conclusion ... 37
References ... 38
Appendix. Questionnaire ... 46
Appendix. Descriptives Firm’s Industry and Age ... 47
Appendix. Reliability measures ... 48
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Abstract
Collaboration in external networks play a significant role for SME and large firms to become innovative ambidextrous. In addition the level of absorptive capacity of a firm plays a significant positive mediation role in this relationship. Research under 178 firms in The Netherlands confirms the need for firms to collaborate in external networks to become
innovative ambidextrous. This research extends our understanding of the dynamic capabilities view by using the network theory and the open innovation concept to explain the role of external networking and absorptive capacity as antecedents to become innovative ambidextrous. Findings show that differences between SME and large firms are present although firm size as a whole does not play a significant moderating role. Results show that large firms are more involved in external networking than SME firms which lead to a better balance in innovative ambidexterity. This is in contrast to what was expected, since SME are proposed to collaborate in networks to overcome their lack of resources and information to innovate. Furthermore, collaboration with clients and suppliers are part of SME networking activities, but collaborations with universities, governmental organizations and research institutes is still limited. While this leads to a better balance in exploitation and exploration of knowledge and to not only incremental innovations but also more radical innovations. This research suggests that SME firms can profit more from external knowledge by considering external networking as a dynamic capability to create a sustainable competitive advantage.
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1. Introduction
"It is the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed." - Charles Darwin
In a decade where knowledge and technology evolve at an enormous speed firms are, to survive, forced adapt quicker than before. This means a constant focus and renewal of firm’s routines and capabilities which in return lead to bigger constraint in resources. The ability to value new external information and apply it commercially, in order words,
absorptive capacity is an important factor to acquire and adopt new knowledge. The ability to acquiring and implement new knowledge play a distinguished role in innovation management. Without a level absorptive capacity firms are hardly able to innovate, on the other hand firms can benefit from external networks to adopt new knowledge. For firms to access new
knowledge, collaboration in external networks and absorptive capacity are essential dynamic capabilities and routines to be managed continuously (Teece, Pisano et al. 1997, Eisenhardt, Martin 2000, Teece 2007). By collaborating in an external network firms are able to
overcome the resources constraints. External networking improves the innovative ambidexterity of firms because it give firms the opportunity to not only interact with customers and suppliers for incremental innovations but moreover to collaborate with knowledge institutes and universities for more radical innovations. Studies into innovation management hold that successful firms are effective at exploiting existing competencies to create gradually improved exploitative innovations while at the same time successfully exploring new competencies and technologies to create explorative breakthrough innovations (Levinthal, March 1993, Gibson, Birkinshaw 2004, He, Wong 2004).
Despite this general consensus firms still face challenges how to deal with this continuous renewal. One of the challenges is the pressure on the organizations resources, in particular small and medium size firms (Lubatkin, Simsek et al. 2006). In the firms´ search for efficient knowledge transfer and acquisition, and knowledge collaboration in external
networks is an unmistakable dynamic capability which still deserve academic as well as management attention. Firms traditionally build on knowledge within the firm developed by their R&D department. Competition between firms and industries force them to look beyond their own knowledge base and into collaborations outside the firm. Based on the resource
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based view (Wernerfelt 1984, Barney 1986, Peteraf 1993) and the knowledge based view (Kogut, Zander 1992, Grant 1996), knowledge is an important factor in having a competitive advantages. Integrating this new knowledge into the existing knowledge base of a firm, has become part of competitive advantage in today’s business environment. Large firms have the ability integrate new knowledge more easily in the firm than small and medium size firms (SMEs). SMEs have limited resources and R&D capacity so it becomes evident that SMEs have stronger need to search for knowledge and collaboration outside of the firm.
Collaboration with not only clients and suppliers, but moreover competition, universities and knowledge institutes.
This thesis contributes first and foremost to the research on dynamic capabilities
(Elsenhardt, Martin 2000) and the network theory (Håkansson 1987) by further exploring the role of external networks and absorptive capacity on innovative ambidexterity. In the context of acquiring knowledge resources, absorptive capacity as critical dynamic capability receives a renewed attention (Spithoven, Clarysse et al. 2011). Empirical research on SMEs and in more traditional industries on this subject is still limited (Spithoven, Clarysse et al. 2011). This thesis also respond to the call of Lichtenthaler (Lichtenthaler 2011) for more research on open innovation by further exploring the balance in inbound open innovation and outbound open innovation.The research on innovation ambidexterity is mostly focused on antecedents within the firm, i.e. dual structures, organizational context, and TMT characteristics (Simsek 2009). In the dynamic environments where firms collaborate beyond their boundaries, empirical attention on antecedents outside the firm is receiving more attention. Especially because firms and organizations are embedded in the structure of their network relations that constrain and enable their behaviour and economic action (Simsek 2009). With this thesis empirically evidence is provided that network collaboration is an antecedent for both
exploitation and exploration (Powell, Koput et al. 1996, Simsek 2009). Finally, the conceptual model of this thesis is proposed by Datta to explain commercialization of innovations (Datta 2011). This thesis provides empirical evidence for this model, in addition firms’ size taking as a moderator to highlight the differences between SME and large firms. The research question of this thesis is as follows:
Are SME firms different in benefiting from external knowledge in sense of innovative ambidexterity? How external networks and absorptive capacity will have effect on innovative ambidexterity?
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The empirical evidence is provided through data from an online survey under SME and large firms of different industries in the Netherlands. The data consists of 173 completed questionnaires. The hypothesized relations between external networking, absorptive capacity and innovative ambidexterity are tested. Furthermore the moderating effect of firm size is explored to identify if small and medium size firms (SMEs) are different in benefiting from collaboration in external networks and knowledge than large firms.
The remainder of this thesis is structured as follows. First the literature review will go into position of the research model in the existing literature. Then the concepts and
relationship between innovative ambidexterity, absorptive capacity and external networks is discussed as separate constructs as well as the proposed interactions. This leads to the conceptual model and hypothesises of the proposed relations between the constructs. In the model firm size is taken as the mediator to go in to differences between SME and large firms. The research is done by sending out a questionnaire to 1.320 Dutch firms. The collected data is analysed followed by discussion of the results. Finally the managerial implications,
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2. Literature overview
The explanation of sustainable competitive advantage starts in the present strategy literature with external orientation of the firm, based on the premises of the industrial organization and the Structure-Conduct-Performance model (Porter , Bain 1968). Porter (Porter )) presented the five force model to explain the importance of analysing the industry competition and attractiveness. Later as a reaction on the outside in view the resource based view (Penrose 1959, Barney 1991, Wernerfelt 1984) set the focus on internal resources and capabilities. The resource based view has been acknowledged as complementary to the industrial organization view (Barney 2001, Peteraf, Barney 2003). Traditional RBV research state that resources need to be controlled by the firm, in order to receive sustainable
competitive advantage. The relational view complements the RBV by arguing that critical resources may span firm boundaries (Dyer, Singh 1998). Firms benefit in alliances and networks because these interfirm linkages give access to partner resources (Gulati 1995). A network strategy can overcome the limitation of the RBV (Gulati 1998) and network
resources are difficult to imitate and therefore can provide a basis for sustainable competitive advantage (Gulati 1999). Complementary to RBV and the relational view, the social network view (Wasserman 1994) provide insides of how network structure and partner characteristics can complement the firms’ resources (Arya, Lin 2007).
One of the critics of the conventional RBV is that it is static and it does not adequately explain how and why certain firms have competitive advantage in situations of rapid and unpredictable change (Teece, Pisano et al. 1997, Eisenhardt, Martin 2000). In order to respond to limited static view of the RBV, scholars have extended the RBV to dynamic markets (Teece, Pisano et al. 1997). The dynamics refer to the continuously changing markets and the necessity to adopt and orchestrate the firms resources accordingly (Teece 2007) The Dynamic capabilities viewemphasis on the ability of sensing, seizing and reconfiguring resources. Successful firms need to build and utilize all three (Teece 2007). A capability is “the firm’s ability to integrate, build, and reconfigure internal and external competencies” ((Teece, Pisano et al. 1997), p. 517). Firms that possess strong capabilities have the strength to reconfigure their resources. Grimaldi (Grimaldi, Quinto et al. 2013) linked the dynamic capabilities to Open Innovation (Chesbrough 2003) and argued that firms with strong sensing, seizing and reconfiguring capabilities are more prepared to develop open innovation
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approaches (Grimaldi, Quinto et al. 2013). Open innovation is defined as ‘the use of
purposive inflows and outflows of knowledge to accelerate internal innovation, and to expand the markets for external use of innovation, respectively.’ (Chesbrough, Vanhaverbeke et al. 2006). Open innovation approach combines the inside out and the outside in processes which leads to collaborations in different forms linked through a network. Studies on open
innovation in SMEs (Van de Vrande, De Jong et al. 2009) show that SMEs are more involved in open innovation due to increasingly important role of SMEs in innovation and the limited resources which force SMEs to collaborate in external networks.
Lichtenthaler (Lichtenthaler 2011) calls for more research on open innovation to further explore the balance in inbound open innovation and outbound open innovation. Inbound open innovation is an outside-in process and involves opening up the innovation process to knowledge exploration. Lichtenthaler refers external knowledge exploration to the acquisition of knowledge from external sources (Lichtenthaler, Lichtenthaler 2009). And in contrast, outbound open innovation is an inside-out process and includes opening up the innovation process to knowledge exploitation. External knowledge exploitation relates to the commercialization of technological knowledge. Lichtentaler suggest combining these internal and external knowledge processes as new form for ambidexterity. (Lichtenthaler,
Lichtenthaler 2009).
Above literature background positions this thesis in the dynamic capabilities view with an emphasis on the management of knowledge. In the open innovation era the dynamic
capabilities ambidexterity, absorptive capacity and external networking are part of this knowledge management process.
2.1 Innovative Ambidexterity
The locus on renewal lays on incremental innovation as well more breakthrough innovations. Incremental innovations are often a result of exploitation in the firm and the more breakthrough innovations come from exploration (Tushman, O’Reilly III 2006). A firm continuously needs to seek balance their exploitation and exploration innovation activities. In the last decade academic research evolved the ambidexterity concept as way for firms to pursue long-term success. In the literature there is a broad discussion how to deal with this
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ambidexterity phenomenon. From organizational ambidexterity theory where forms of organizational separation is proposed to contextual ambidexterity where behavioural and social means of integrating exploitation and exploration is suggested. Ambidexterity was first mentioned by Duncan (Duncan 1976), he argued that for long-term success firms needed to consider dual structures. Structures to initiate and structures to execute innovation. In his view, ambidexterity occurs sequentially as organizations switch structures as innovations develop (Duncan 1976). Firms adjust their structures by the phase of the innovation process: organic structures to explore followed by mechanistic structures to exploit. The research on ambidexterity received more attention with the article by March, arguing that organizations need to be aligned to both exploitation and exploration (March 1991). Firms that fails to achieve this balance risk falling into a downward spiral of mediocrity (March 1991). Firms need to achieve a balance between exploitative and explorative to achieve superior
performance (Burgelman 1991, Tushman, Reilly et al. 1996, Volberda 1996, Eisenhardt, Martin 2000). A focus on exploitation may improve short-term performance, however it can result in a competency trap because firms may not be able to respond adequately to
environmental changes (Ahuja, Morris Lampert 2001). In reverse, only a focus on exploration may improve an organization´s ability to renew its knowledge base but can trap firms in a continuously search for innovation without rewards. (Volberda, Lewin 2003). As competition intensifies and technological renewal accelerates a simultaneous pursuit of both opposing strategies are increasingly important (Jansen, Van Den Bosch, Frans AJ et al. 2005).
The two approaches exploitation and exploration represent a fundamentally different process (He, Wong 2004). Exploitative activities are characterized by efficiency, refinement, routinization, incremental innovation and tightly coupled systems and exploitative activities are characterized by discovery, experimentation, search, risk taking, radical innovation and loosely coupled systems (He, Wong 2004, Gibson, Birkinshaw 2004). Ambidexterity requires an alignment of competencies, structures and cultures to engage in exploration, a contrasting alignment focused on exploitation, and a senior leadership team with the cognitive and behavioural flexibility to establish and nurture both (O’Reilly III, Tushman 2008). Therefore balancing exploitation and exploration in a firm is such a complex task. The challenge for firm is to manage this dynamic capability (Eisenhardt, Martin 2000, O’Reilly III, Tushman 2008, Teece 2007). It implies the ‘routines and processes by which organizations mobilize, coordinate and integrate dispersed exploratory and exploitative efforts and allocate, reallocate, combine and recombine resources and assets across differentiated units’ (Jansen, Tempelaar
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et al. 2009). Ambidexterity only becomes a dynamic capability if the firm’s exploitation and exploration activities are strategically integrated (O’Reilly III, Tushman 2008). Ambidextrous firms are capable of simultaneous, yet contradictory, knowledge management processes, exploiting current competencies and exploring new domains with equal dexterity (Lubatkin, Simsek et al. 2006).
Theories of architectural ambidexterity propose dual structures and strategies,
differentiating efforts to focus on either exploitative or exploratory innovation (Gupta, Smith et al. 2006). In recent years the concept of organizational ambidexterity has gained
momentum in research on organizations (Raisch, Birkinshaw et al. 2009). Organizational ambidexterity signifies a firm’s ability to manage these tensions (Duncan 1976), defined as an organization’s ability to be aligned and efficient in its management of today’s business
demands while simultaneously being adaptive to changes in the environment (Raisch, Birkinshaw 2008). Although organizational ambidexterity gained increasingly interest in academic research there is still ambiguity about the concept. Related research suggests multiple paths to ambidexterity (Kortmann 2012, Raisch, Birkinshaw et al. 2009, Simsek 2009). Several scholars have argued that the level of dynamism and competitiveness in a business environment may be an important boundary condition for organizational
ambidexterity (Gibson, Birkinshaw 2004, Levinthal, March 1993, Siggelkow, Levinthal 2003, Volberda 1998).Whereas the initial attention to achieve ambidexterity is by spatially
separating the activities into distinct organizational units (Gupta, Smith et al. 2006) is extended to contextual antecedents. Contextual ambidexterity, emphasizes behavioural and social means of integrating exploitation and exploration (Gibson, Birkinshaw 2004).
The further advancement of the theory of organizational and contextual ambidexterity shows evidence that both types are complementary and not alternative pathways to
ambidexterity (Raisch, Birkinshaw et al. 2009). Although there is broad consensus about the relation of ambidexterity with firm performance (Jansen, Tempelaar et al. 2009,
Andriopoulos, Lewis 2009) there is still a research debate going on in the way different antecedents which play a role. Also the differences between large firm and SMEs are part of this research effort. There are differences in the innovation strategies of SMEs and large firms due to their different response and sensibility to external environment pressure (Dean, Brown et al. 1998). Prior studies found that SMEs tend to use different types innovation
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SMEs differ from larger firms regarding available resources such as human resources capital and financial capital (Cooper, Gimeno-Gascon et al. 1994, Forbes, Milliken 1999). Moreover, SMEs may pursue different innovation strategies from larger firms due to the fact that SMEs have restricted managerial expertise (Pissarides 1999, Forbes, Milliken 1999) as a result of different internal and external environments (Ebben, Johnson 2005). The larger part of academic research has however, focus on large and multiunit firms, emphasising the overwhelming importance of simultaneously or sequentially pursuing explorative and
exploitative innovations (Tushman, Reilly et al. 1996, Gibson, Birkinshaw 2004, Birkinshaw, Gibson 2004, Raisch, Birkinshaw 2008, Jansen, Van Den Bosch, Frans AJ et al. 2005, Jansen, Van Den Bosch, Frans AJ et al. 2006). Research on SMEs (Cao, Gedajlovic et al. 2009, Van de Vrande, De Jong et al. 2009) found that SMEs as relatively resource-constrained firms benefit from a balance dimension of innovation ambidexterity but larger firms benefit from a combined dimension of innovation ambidexterity. Accordingly, SMEs faced greater
challenges in managing tensions, contradictions, and trade-offs associated with explorative and exploitative innovations than larger firms (Andriopoulos, Lewis 2009, Bierly, Daly 2007).
2.2 External Networks
For a long time firms relied on internal research and development to innovate and create new products. Accordingly firms established large R&D departments as a strategic asset and making this a considerable entry barrier for potential rivals. Due to labour mobility, abundant venture capital and widely dispersed knowledge across multiple public and private organizations, firms can no longer afford to innovate on their own, but rather need to engage in alternative innovation practices (Van de Vrande, De Jong et al. 2009). Gupta et al (Gupta, Smith et al. 2006) argues that innovation occurs in social broader systems than a single firm. Michael Porter (Porter ) emphasized the importance of collaboration of industries in the eighties. Based on the industrial organization perspective, Porter argued that clusters, relationships among network members are primarily non-hierarchical, and participants often have substantial operating autonomy (Porter ). Later the network theory (Håkansson 1987) received attention in the resource base view and the dynamic capabilities view (Raisch, Birkinshaw et al. 2009). Scholars researched the different forms of collaborations as clusters (Porter ), interorganizational collaborations (Powell, Koput et al. 1996), alliances (Hamel 1991) and joint ventures (Kogut 1988). Later nets were added as form of collaboration
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(Möller, Rajala et al. 2005). Three different types of value nets are defined: vertical,
horizontal and multidimensional. The vertical nets are to increase operational efficiency of the value system (producer-supplier-customer), horizontal nets are formed by competitor
alliances and cooperative arrangements involving different institutional actors (government agencies, industry associations, research institutes and universities) that focus on provide access on existing resources or co-developing new resources (Möller, Rajala et al. 2005). Multidimensional nets are well defined value systems, integrating all different products and services from different suppliers and channels. Multidimensional nets are also formed for creating new technologies or business concepts (Möller, Rajala et al. 2005).
For this research we are especially interested in the interorganizational networks or external networks. External networks refer to common themes including social interaction, relationships, connectedness, collaboration, collective action, trust, and cooperation (Provan, Fish et al. 2007). Networks are defined as relationships among network members that are primarily non-hierarchical, and participants often have substantial operating autonomy (Provan, Fish et al. 2007). Networking is described as an interaction between government agencies, inter-firm cooperation, intermediary institutions and research organizations (Möller, Rajala et al. 2005). The network partners therefore are customers, suppliers, producers, knowledge institutes, services providers and competitors. Network members can be linked by many types of connections and flows, such as information, materials, financial resources, services, and social support. Connections may be informal and totally trust based or more formalized, as through a contract. The centrality of location in a network matters, firms with a central position benefit more from the network they are in (Powell, Koput et al. 1996).
Although, it is still not clear scholars define as they use the term external networks (Provan, Fish et al. 2007), in this research we focus on the external (business) networks which
according to Human and Provan, intentionally formed groups of profit-oriented firms which are geographically proximate, operate within the same industry, potentially sharing inputs and outputs and undertake direct interactions with each other for specific business outcomes (Human, Provan 1997).Firms join networks to gain access to information and knowledge in order to gain access to new or complementary competencies, technologies and markets (Mitchell, Coles 2003).
The conduct and performance of firms is influenced in important ways by the strategic networks in which they are embedded (Zaheer, Gulati et al. 2000). As firms form and
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maintain alliances with each other, they construct a network of direct and indirect
relationships. As a result, firms embedded in these networks gain access to information and know-how of direct partners and that of others in the network to which they are indirectly connected (Ahuja 2000, Gulati, Gargiulo 1999). Firms enter networks to access critical resources, but they rely on information from the network of prior alliances to determine with whom to cooperate (Gulati, Gargiulo 1999). The position within a network, moreover the central position in a network relative to others expect greater benefits in terms of knowledge spill overs and information flows than peripheral actors (Powell, Koput et al. 1999). Central organizations, because of their more numerous direct and indirect connections to others, have more relationships to draw upon in obtaining resources and so are less dependent on any single organization to explore (Scott, Carrington 2011). External relations with intermediary organizations could be a source for innovation for SMEs (Doloreux 2004). Belderbos
(Belderbos, Carree et al. 2004) distinguish network actors for both incremental and more radical innovations. They argued that competitor and supplier cooperation focus on incremental innovation and university cooperation are important source of knowledge for firms pursuing more radical innovations. Firms utilize networking as external source of innovations and use networks to promote their own internally and external sourced innovations (Chesbrough, Vanhaverbeke et al. 2006). More firms have moved to an open innovation model in which they employ both internal and external pathways to exploit technologies and acquire knowledge from external sources (Chesbrough 2003). Interactions with the actors outside of the firm could also play a positive role for firms facing the
competence traps (Ahuja, Morris Lampert 2001). They argue that three competence traps arise for existing firms: familiarity, maturity and propinquity traps. Familiarity traps results from an overemphasis on known technologies within the firm, preventing the firm from exploring new knowledge and technologies. Maturity traps results form a focus on existing and established technologies which give reliable and predictable outcomes and therefore limiting their effort in exploring knowledge. Propinquity traps come from the firms’ nature to explore knowledge in areas closest to existing knowledge, preventing them to reflect
important shift in the external environment.
Although Ahuja and Lampert (Ahuja, Morris Lampert 2001) conducted their research on large firms, the competence traps become evident for SME as well. Moreover, SMEs are much more likely to be limited by these traps (Datta 2011) due to the limitation of resources and risk-bearing capabilities. Within the network literature it is stressed out the proximity and
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geographic location plays an important role in the outcomes of networks (Funk 2013).The proximity offers benefits like transportations cost and access to labour (Porter, Stern 2001). Moreover for innovation the greatest advantage is being near other firms form the increased access to knowledge through spill overs (Funk 2013). Gellynck et al (Gellynck, Vermeire et al. 2007) found evidence that firms are having a stronger innovation competence when networking within the region, and when orienting towards the international market. Also internationally operating firms benefit from regional networking (Gellynck, Vermeire et al. 2007).
2.3 Absorptive capacity
The resource base view (i.e. (Wernerfelt 1984, Hamel 1991, Prahalad, Hamel 1990, Barney 1991) and the dynamic capability perspective (Teece, Pisano et al. 1997, Eisenhardt, Martin 2000) underlines the firms need of resources and capabilities to manage new
knowledge to gain competitive advantage. Dynamic capabilities are defined as the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece, Pisano et al. 1997). External networks form a capability to access new knowledge through the ties with clients, firms and institutions. Powell et al (Powell, Koput et al. 1996)links networking with the absorptive capacity of the firm and argues that the development of cooperative routines goes beyond simply learning how to maintain a large number of ties. Only access to new knowledge is not enough, firms need to find the capability to manage the new knowledge (Zahra, George 2002). Lewin and Massini (Lewin, Massini 2003)argue that firms that are early in adopting new technologies and adopt them successfully, have superior absorptive capacity capabilities. To evaluate and utilize knowledge from outside of firm is largely a function of the level of prior related knowledge (Cohen, Levinthal 1990). The ability to exploit external knowledge is a critical component of innovative capabilities. The ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. This capability is labelled as a firm's absorptive capacity (Cohen, Levinthal 1990).
Key antecedents of absorptive capacity include prior related knowledge and
organizational factors. Based on the initial concept of Cohen and Levinthal and advanced by Zahra and George (Zahra, George 2002) and Lewin et al (Lewin, Massini et al. 2011) four
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steps in the absorptive capacity process are distinguished: acquisition, assimilation and transformation. Acquisition holds the identification and acquisition of knowledge relevant to the operations of the firm. Investment in R&D and prior knowledge is are antecedents in this step (Cohen, Levinthal 1990), (Zahra, George 2002). Assimilation, holds the inclusion, conversion and interpretation of information (Cohen, Levinthal 1990). During the third step, transformation, new and existing information is combined (Zahra, George 2002). Finally exploitation, where the application of knowledge is commercialized (Cohen, Levinthal 1990). The four process steps are combined in two distinguished forms: potential absorptive capacity (knowledge acquisition and assimilation) and realized absorptive capacity (knowledge
transformation and exploitation) (Zahra, George 2002). In the open innovation era, as
introduced by Chesbrough (Chesbrough 2003) firms rely more and more on external sources of innovation. Chesbrough argues that the internal and external knowledge should be more in balance and helps firms to be not only exploit knowledge but more over explore knowledge beyond their operation. Rothaermel and Alexandre state that absorptive capacity is an antecedent to the ambidexterity in technology sourcing (Rothaermel, Alexandre 2009). An certain level of absorptive capacity allows a firm to overcome inherent tensions in
ambidexterity that arise from the simultaneous search of exploration and exploitation (Rothaermel, Alexandre 2009).
In sum, it is well documented in the literature that absorptive capacity plays an important role in the firm capability to process new knowledge. Moreover it is essential to balance the exploiting and exploring innovation capabilities. The level of absorptive capacity is coming from the level of existing knowledge within the firm (Rothaermel, Alexandre 2009). For large firms with an internal R&D capacity there is a significant investment in the existing knowledge. However within SME firms this level of internal R&D base is limited. Following the open innovation strategy it becomes apparent that SME should benefit more from external networking than large firms to become ambidextrous. Although there is evidence that absorptive capacity plays a role, little is known about difference between SME and large firms. This leads us to the research questions of the thesis:
Are SME firms different in benefiting external knowledge in sense of innovative ambidexterity? How external networks and absorptive capacity will have effect on innovative ambidexterity?
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3. Theoretical framework
This thesis advances the theory about ambidexterity as antecedent to innovation by combining the three constructs and by looking into the differences between SME and large firms. In this way we try to get a better view how the antecedent interact with each other and we advance the research in innovation in SMEs. Nowadays titled as the corner stone of innovation (OECD 2010). In the next section I will go into the relations between the three constructs and the moderator role of firm size, followed by the research model.
3.1 External networks and Innovative Ambidexterity
The resourced base view (i.e. (Wernerfelt 1984, Hamel 1991, Prahalad, Hamel 1990, Barney 1991) and dynamic capability perspective (Teece, Pisano et al. 1997, Eisenhardt, Martin 2000) underline the significance of both resources and dynamic capabilities of firms. External networking, is a dynamic capability that enable firms to balance exploitative and explorative innovation (Birkinshaw, Gibson 2004, Gibson, Birkinshaw 2004, Raisch, Birkinshaw 2008). Moreover external networks are an antecedent for innovative ambidexterity in a way that interactions with firms and organizations able the firm to simultaneously exploit and explore knowledge within the firm. (Birkinshaw, Gibson 2004, Gibson, Birkinshaw 2004, Raisch, Birkinshaw 2008). The locus on innovation lies within a network of learning, composed of existing firms, new entrants, and research institutions, rather than within the boundaries of individual firms (Powell, Koput et al. 1996).The concept of innovative ambidexterity refers to the “ability to simultaneously pursue both incremental (exploitative) and discontinuous (exploratory) innovation” (Tushman, Reilly et al. 1996). Firms should, to be ambidextrous, be able to effectively manage the tensions that come from pursuing exploration and exploitation simultaneously (Raisch, Birkinshaw 2008).
Exploration is related to sourcing of new knowledge or technology and exploitation is related to sourcing of existing knowledge or technology (Rothaermel, Alexandre 2009). External networks refer to common topics such as social interaction, relationships, connectedness, collaboration, collective action, trust, and cooperation (Provan, Fish et al. 2007). Furthermore external networks assist firms in their problem solving and to overcome the familiarly and convenience trap (Simsek 2009).A firm with heterogeneous partners has access to more complementary resources and knowledge how to use these resources in their operations (Simsek 2009).In contrast, a firm that has a homogenous network has little
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opportunity to look into different perspectives because the member think and act similar (Simsek 2009).Firms join networks to gain access to information and knowledge in order to access to new or complementary competencies, technologies and markets (Mitchell, Coles 2003). The network partners for firms to cooperate are customers, suppliers, producers, services providers and competitors. Hence, firms need to balance the internal and external knowledge resources in order to become innovative ambidextrous. External networks plays a significant role in the interactions with external actors and knowledge providers. Accordingly we test the relationship between external networks and innovative ambidexterity:
Hypothesis 1: External Networking is positively related to Innovative Ambidexterity.
3.2 Absorptive Capacity, External Networks and Innovative Ambidexterity
In addition to the relationship between external networks and innovative
ambidexterity, this study suggests a mediating role for absorptive capacity. An appropriate level of absorptive capacity allows a firm to overcome tensions in ambidexterity that arise from the simultaneous pursuit of exploration and exploitation (Rothaermel, Alexandre 2009). External networking enable firms to share knowledge and profit from complementary
resources. In order to profit from these knowledge resources firms need to learn how to transfer and implement this newly acquired knowledge into the firm (Cohen, Levinthal 1990). Firms that possess relevant prior knowledge are likely to have a better understanding of new technology that can generate new ideas and develop new products absorptive capacity (Cohen, Levinthal 1990).The search for a balance in incremental and discontinuous innovation or innovation ambidexterity is to overcome an over attention on explorative innovation which may result high R&D investments without a critical look in the efficiencies (Tushman, Reilly et al. 1996). On the other hand may an over emphasis on costs and
efficiency lead only to incremental innovations.
External networks and more specifically the relationships between firms, research institutes and universities affect a firm’s absorptive capacity (Cohen, Levinthal 1990).Too much information derived from external networks however can lead to an information overload. So, too much involvement in external networks can lead to less productive. Hence, firms need to develop and routinize information filters and focus on only relevant information (Simsek 2009).Firms may invest in external learning to gain knowledge unrelated to their
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current areas of expertise or to use knowledge that advances their existing technologies and products (Cohen, Levinthal 1990).In sum, firms need to explore new knowledge outside of the firm in order to balance their exploitative and explorative innovative capabilities. To do so firms need to increase their absorptive capacity. External networks are a source of new
knowledge, competencies and technologies. External networks therefore enables a firm to expand knowledge, complementary to the existing knowledge base. This leads to the following hypothesis:
Hypothesis 2: Absorptive capacity significantly influences the relation of external networking and innovative ambidexterity.
Firms are different in their ability to assimilate and replicate new knowledge gained from external sources (Cohen, Levinthal 1990). The level of absorptive capacity influences this ability (Tsai 2001). According to Cohen and Levinthal, absorptive capacity involves the ability to assimilate new external knowledge and apply such knowledge to commercial ends. Zahra and George distinguished potential and realized absorptive capacity (Zahra, George 2002). Firms need to manage these dimensions to obtain superior performance. A focus on only acquisition and assimilation of new external knowledge able firms to renew their knowledge stock, leads to acquisition cost without gains from exploitation. Otherwise, focus on transformation and exploitation result short-term profits but does not enable firms to respond to environmental changes (Jansen, Van Den Bosch, Frans AJ et al. 2005).Greater levels of absorptive capacity enables firms to deal with the tensions arising from a
simultaneous pursuit of exploration and exploitation from combining internal and external sources (Rothaermel, Alexandre 2009). In order to investigate the differences between SME and large firms and in line with Rothaermel and AlexandreI hypothesize that firms with greater levels of absorptive capacity obtain larger benefits from innovative ambidexterity.
This leads to hypothesis 3:
Hypothesis 3: Absorptive capacity significantly influences the innovative ambidexterity of firms.
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3.3 Firm size
In addition to the relations o external networking and absorptive capacity to innovative ambidexterity this studies is particular interested in the differences between large firms and SMEs. Therefore in the research firm size is taken into account as moderator in the research model.
The innovation capabilities of SMEs receive quit some attention as they nowadays are seen as the drivers of innovation (OECD 2010). Times have changed since Schumpeter (Schumpeter 1934) argued that large firms are more likely to innovate than SMEs. Recent studies show that large firms actually tend to be slower to respond to new opportunities than smaller firms (Morris, Kuratko et al. 2010)and may lack sufficient flexibility to adopt ambidextrous behaviour (Jansen, Tempelaar et al. 2009).SMEs on the other hand, generally do not have access to large amounts of slack or resources to balance the exploitative and explorative capabilities (Lubatkin, Simsek et al. 2006). They also often do not have the resources to manage and organize the whole innovation process and therefore are more looking into collaborating with other firms (OECD 2010).
Research into SMEs show that network ties (Nooteboom 1999) may be a typical SME instrument for innovation. Nootenboom argued that “the relevant variable is not firm size, but degree of integration and the strength of links” (Nooteboom 1999). Accordingly we look into the differences in relations between external networks, absorptive capacity and innovative ambidexterity for SME and large firms. This leads to the following hypothesis:
Hypothesis 4: Firm size influences the relation of external networking, absorptive capacity and innovative ambidexterity.
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In sum, this research is seeking for empirically evidence in to the relations between external networking and absorptive capacity as antecedents of innovative ambidexterity and moreover the moderating role of firm size. The proposed hypotheses lead to the following conceptual model: Absorptive capacity External networking Innovative Ambidexterity Firm size H2 H1 H3 H4
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4. Methodology
4.1 Data collection and sample
The goal of this research is to find out empirically evidence about the relationships between innovative ambidexterity, absorptive capacity and external networks. Moreover the research looks into the differences of the relations between SME and large firms. To test the hypotheses, quantitative data is collected with a single data collection technique. An online questionnaire is used to collect the data efficiently and economically. This technique has its limitations like the forced answers through the Likert scale and possible misinterpretation of the questions and answers, on the other hand it is efficient and cost effective technique (Saunders, Lewis 2012). An online questionnaire is send through email to 1.320 Dutch firms which were sampled using a convenience sampling approach. 125 email addresses bounced. The sample is partially extracted from a firm database from the Regional development agency NHN and partially from firm relations of colleague students. In order to get a larger sample size, a collaboration was formed of four students, which have the ambidexterity as one of the constructs. The questions of the survey where all based on existing measures in the literature. For this research I choose multiply questions about the three constructs, absorptive capacity, external networks and innovative ambidexterity. The online survey was held in November 2014. To motivate the respondents we donated fifty eurocent to the Movember Foundation. The data exists of in total 173 complete filled in questionnaires of which 95 SMEs and 78 large firms. SMEs in this research are defined as firm with less than 250 employees.
4.2 Measures
The selected measures and scales are a result of the literature review and after discussion with the students in the questionnaire collaboration. For the three measures a seven-point Likert scale (1 = strongly disagree; 7 = strongly agree) was used, with Cronbach’s alphas exceeding the threshold of .7 (Hair, Anderson et al. 1998). With the student group we have selected the questions in that way that similar questions were avoided to prevent the questionnaire being too large.
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4.2.1 Dependent variable: Innovative ambidexterity
Innovative ambidexterity is defined as the dependent variable. Innovative
ambidexterity signifies the “ability to simultaneously pursue both incremental (exploitative) and discontinuous (exploratory) innovation” (Tushman, Reilly et al. 1996). To measure ambidexterity the constructs for exploitative and exploratory innovation ambidexterity, adopted from Jansen et al (Jansen, Van Den Bosch, Frans AJ et al. 2006) are used.
The outcome of the dependent variable innovative ambidexterity is put on the same seven point Likert scale used for the independent variables in order to compare the results. The values of exploitative and explorative innovative ambidexterity were added to create one construct (Lubatkin, Simsek et al. 2006).
4.2.2 Independent variable: Absorptive capacity
Absorptive capacity is frequently measured by the potential and realized absorptive capacity measure of Jansen and Van den Bosch et al (Jansen, Van Den Bosch, Frans AJ et al. 2006, Jansen, Van Den Bosch, Frans AJ et al. 2005). This reliable scale is based on twenty-one questions about potential and realized absorptive capacity. Due to collaboration with the four students and the limitation of the total amount of questions I adopted an alternative scale
Dependent variable: Innovative Ambidexterity
Exploratory innovation (Jansen, Van Den Bosch, Frans AJ et al. 2006) (1 = strongly disagree ; 7 = strongly agree)
1) Our organization accepts demands that go beyond existing products and services. 2) We commercialize products and services that are completely new to our organization. 3) We frequently utilize new opportunities in new markets.
4) Our organization regularly uses new distribution channels.
Exploitative innovation (Jansen, Van Den Bosch, Frans AJ et al. 2006)(1 = strongly disagree ; 7 = strongly agree)
5) We frequently make small adjustments to our existing products and services. 6) We improve our provision’s efficiency of products and services.
7) We increase economies of scales in existing markets. 8) Our organization expands services for existing clients.
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of three questions. This prevented the questionnaire of being too long and the risk of poor data. Absorptive capacity was measured using a three-item scale (α = 0.93) adopted from Wang et al. (Wang, Senaratne et al. 2014). Wang et al adopted the scale of absorptive capability of García-Morales, Lloréns-Montes and Verdú-Jover’s (García‐Morales, Lloréns‐ Montes et al. 2008), which in return is based on Cohen and Levinthal’s ((Cohen, Levinthal 1990) definition of absorptive capability.
Independent variable Absorptive Capabilities (1 = strongly disagree ; 7 = strongly agree)
9) This firm has the necessary skills to implement newly acquired knowledge 10) This firm has the competences to transform the newly acquired knowledge 11) This firm has the competences to use the newly acquired knowledge Original Source: (Wang, Senaratne et al. 2014)
4.2.3 Independent variable: External Networks
Although, it is still not clear scholars define as they use the term networks (Provan, Fish et al. 2007), in this research we focus on the external (business) networks. These external networks are intentionally formed groups of profit-oriented companies in which the firms are geographically proximate; operate within the same industry, potentially sharing inputs and outputs; and undertake direct interactions with each other for specific business outcomes (Human, Provan 1997).
The independent variable external networks was measured based on (Zeng, Xie et al. 2010). The level of external networks is defined from eight-item construct of collaboration of a firm with external actors ((Doloreux 2004).
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4.2.4 Control variables
To control for inconsistent effects the variables age, size and industry of the firm were included in the questionnaire. The variable size of the firm is used as control variable to differentiate the database into SME and large firms. Large firms and SME act differently in ambidextrous and network behaviour. Where large firms may have a wider variety in resources to able ambidextrous behaviour, SME are generally more flexible to adopt
ambidexterity (Jansen, Tempelaar et al. 2009). The age of the firm is included because older firms tend to overstate operational efficiency and exploitation compared to explorations and flexibility (Benner, Tushman 2003). On the other hand young firms have the tendency to only focus on exploratory activities (Benner, Tushman 2003). This contrast in exploitative and explorative innovation pursue may affect the ambidexterity outcomes. In order to be able to generalize the outcomes to different industries, the control variable industry of the firm was added.
Control Variables
20) Firm size 21) Firm age 22) Firm industry
Independent variable External Networks (1 = strongly disagree ; 7 = strongly agree)
12) Extent of your firm have cooperated with customers and client 13) Extent of your firm have cooperated with suppliers
14) Extent of your firm have cooperated with competitors/rivals 15) Extent of your firm have cooperated with government agencies 16) Extent of your firm have cooperated with industrial associations 17) Extent of your firm have cooperated with venture capital organizations 18) Extent of your firm have cooperated with universities
19) Extent of your firm have cooperated with research institutions Using the measures for knowledge networks of (Zeng, Xie et al. 2010)
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5. Data analyses and Results
5.1 Data analyses
The survey was send by email to 1.320 firms, response was 173 complete filled in questionnaires. The questionnaire was designed in Qualtrics. In Qualtrics the questions were forced with an answer, to excluded missing values. The questions were all checked for reversed coding. No need to adjust for. Three control variables were used, firm size, age and industry of the firm. In the appendix the descriptive of firm’s industry and age are presented. The variable Firm size is presented in table 1.
According to the European standards for defining SMEs we defined a SME as a firm up to 250 employees. From the 173 respondents we recorded 95 SME firms and 78 large firms. We also check for differences in industries and age of the firm. The respondents were asked to give there industry based on the industry index used by the Dutch Chamber of Commerce. From respondents 12,1% reported to be active in Industry and 17,9 % reported to be active in Business services. From the respondents 8,1% reported working in a firm existing less than 5 years, 14,5% of the firms is 6 to 14 years and 78,5 % of the firms are 15 years or older.
Table 1: Firm size
Frequency Percent Valid Percent Cumulative Percent Valid 0 - 9 34 19.7 19.7 19.7 10 - 49 37 21.4 21.4 41.0 50 - 250 24 13.9 13.9 54.9 250+ 78 45.1 45.1 100.0 Total 173 100.0 100.0
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5.2 Results Reliability
The questions for the different variables where chosen from existing literature and checked for their reliability. To check for reliability the Cronbach alpha measures were
computed in SPPS. The Cronbach alpha for Innovative Ambidexterity was .84, for Absorptive Capacity .93 and for External networks .72. The Cronbach Alpha for External Networks could be higher when we excluded the variable Investors (.74), but I choose not do this since the Cronbach Alpha was already >.7.
Table 2 Descriptive Statistics
Minimum Maximum Mean Std. Deviation Skewness Kurtosis
Statistic Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error
Absorptive Capacity 1.00 7.00 5.1156 1.34087 -.906 .185 .236 .367
Innovative Ambidexterity 1.00 7.00 4.9841 .96426 -.551 .185 1.285 .367
External Networking 1.00 7.00 4.7471 .94584 -.769 .185 1.330 .367
Valid N (listwise)
The three measures were checked for skewness, indicating the degree and direction of asymmetry. All three measures have moderate negatively skewness (mean is less than the median), which indicates that most respondents score higher on agree. Analyzing the sub-measures for External Networking we see a highly negative skewness for collaboration with customers (-1,586) and suppliers (-1,718) indicating that firms collaborate more with these network actor, furthermore collaboration with Investors (-.149) is less common practice. We then computed the variables for Absorptive Capacity, Innovative Ambidexterity and External Networks.
Correlations
In table 3 the correlations between the different variables are presented. The bivariate correlation analysis show significant correlations between external networking and innovative ambidexterity (.390), external networking and absorptive capacity (.319), and between
absorptive capacity and innovative ambidexterity (.442). The mean of External networking (4,75) is lower than the means for Absorptive capacity (5.12) and Innovative ambidexterity (4.98).
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The control variables age and industry of the firm did not show significant correlation with the three constructs in this study. Firm size show significant correlations with external networking (.152) and innovative ambidexterity (-.171). The control variables age and firm size show significant correlations (.651**) between each other. This is part of another discussion, not to be discussed in this study.
Table 4: Means, Standard Deviations for All firms, SME and Large firms
All firms SME (<250) Large (>250)
Variables M SD M SD M SD
1. Firm’s Industry 11.21 5.50 11.17 5.48 11.27 5.55 2. Size of the firm 2.84 1.20 1.89 0.78 4.00 0.00 3. Age of the firm 3.12 0.94 2.68 0.96 3.65 0.58 4. External Networking 4.75 0.95 4.62 1.07 4.90 0.75 5. Absorptive Capacity 5.12 1.34 5.16 1.35 5.06 1.33 6. Innovative Ambidexterity 4.98 0.96 5.11 0.95 4.83 0.96 *. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
In Table 4 the means and standard deviations difference between SME and Large firms are presented. The control variable Firm size was used to divide the respondent firms in to SME and large firms. SME‘s is defined a firm with less than 250 employees and large firms with more than 250 employees. In SPSS I split the outcomes accordingly. SME has a slightly lower mean for External Networking and higher Absorptive Capacity and Innovative Ambidexterity. There are no large differences between Firms industry compared to the size.
Table 3: Means, Standard Deviations, Correlations
Variables M SD 1 2 3 4 5 6
1. Firm’s Industry 11.21 5.50 -
2. Size of the firm 2.84 1.20 -0.02 -
3. Age of the firm 3.12 0.94 -0.11 .651** -
4. External Networking 4.75 0.95 0.03 .152* 0.06 (.72)
5. Absorptive Capacity 5.12 1.34 -0.05 -0.11 -0.05 .319** (.93)
6. Innovative Ambidexterity 4.98 0.96 -0.09 -.171* -0.11 .390** .442** (0.84) *. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
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Multiple Regression
With a regression analyses the relations between the independent variables External Networking and Absorptive Capacity and the dependent variable Innovative Ambidexterity are tested. To do so I try to find support for hypothesis 1 and 3, the relationship between External Networking and Innovative Ambidexterity and the relationship between Absorptive capacity and Innovative Ambidexterity. The multiple regression indicates the proportion of variance of the dependent variable Innovative Ambidexterity explained by External
Networking and Absorptive capacity. The control variables firm’s industry, age and size where added to the model.
Table 5. Hierarchical Regression Model of Innovative Ambidexterity (All firms)
R R² R² Change F Change B SE β t Sig. Model 1 .196a 0.039 0.039 2.261 Industry of firm -0.017 0.013 -0,097 -1.271 0.205 Firm Size -0.131 0.08 -0.162 -1.631 0.105
Age of the firm -0.018 0.102 -0.018 -0.176 0.861
Model 2 .552c .305 *** 0,266*** 32.016
Industry of firm -0.016 0.011 -0.090 -1.382 0.169
Firm Size -0.151 0.070 -0.188* -2.160 0.032
Age of the firm -0.001 0.088 -0.001 -0.014 0.988
Absorptive Capacity 0.327 0.071 0,320*** 4.602 0.000
External Networking 0.227 0.050 0,316*** 4.563 0.000
Note: Statistical significance * p < ,05; ** p < ,01; *** p < ,001 a. Predictors: (Constant), Industry of the firm, Firm size, Age of the firm
b. Predictors: (Constant), Industry of the firm, Firm Size, Age of the firm, Absorptive Capacity, External Networking
The results are shown in Table 5. In the first step of hierarchical multiple regression, three predictors were entered in Model 1: firm´s industry, size and age. Model 1 was
statistically not significant F (3, 169) = 2.261; p > .05; explaining 3,9 % of variance in innovative ambidexterity. Model 2 (Absorptive Capacity, Innovative Ambidexterity and External Networks) is explained with an R square of .305 and an R square change of .266 with a significance of .000. The total variance explained by the model as a whole was 30.5% F (5, 167) = 14.66; p < .000.
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The introduction of absorptive capacity and external networks in the model explained, after controlling for firms industry, size and age, an additional 26.6% variance in Innovative ambidexterity (R2 Change = .266; F (2, 167) = 32.016; p < .000). In Model 2 three out of five predictor variables (Firm size, absorptive capacity and external networks were statistically significant, with external networks recording a slightly higher Beta value (β = .320, p < .05) than absorptive capacity (β = .316, p < .05). In sum, I find support for hypothesis 1 and 3 stating that both external networking and absorptive capacity both play a significant role in a firm’s innovative ambidexterity. In model 2 Firm size is tested as a significant predictor variable (β=-0.188*, p= 0.032).
Now support is found for hypothesis 1 and 3, I further analyze the effect of external networking on innovative ambidexterity, both directly and indirectly through the absorptive capacity of a firm. To test this, a non-parametric bootstrapping procedure for testing multiple-mediation was used. The models for multiple-mediation of Preacher and Hayes (2008) are used. In SPSS the macro PROCESS for SPSS was used. In the model the covariates are again firm industry and firm age. To look into the differences in mediation effects between SME and Large firms he database was split.
Table 6. Mediation effect (Process)
SME Large Total
Coeff. Coeff. Coeff.
a1 External Networking – Absorptive Capacity 0.5555 0.3433 0.461 b1 Absorptive Capacity – Innovative Ambidexterity 0.1857 0.2986 0.243 Direct effect c1' External Networking - Innovative Ambidexterity 0.2713 0.479 0.2976 Indirect effect a1b1 Extnetwo - AbsCap - InnoAmbi 0.1032 0.1025 0.112 Total Effect c1 Extnetwo - AbsCap - InnoAmbi 0.3744 0.5815 0.4096
In table 6 the results of the mediation test show again support for the direct effect of external networking leading to innovative ambidexterity (c1’= .2976); where the direct effect for Large firm is noted higher than for SME. The indirect effect through absorptive capacity (a1b1 = .112) leads to a total effect of .4096. There is hardly difference of the indirect effect for SME and Large firm, but the direct effect of external networking leading to innovative ambidexterity is higher for large firms. For SME those firms who more external networking have ,56 units more absorptive capacity (than those with no external networking (sign). The total effect of those firms who are External Networking are ,37 units more Innovative
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Ambidextrous than firms who do not External networking (statistically ≠ 0). For Large firms this is even larger .58 units. In sum, support is found that external networking leads to innovative ambidexterity both directly and indirectly, through absorptive capacity. This provide the evidence to support hypothesis 2. Absorptive capacity mediates the relation of External networking and innovative ambidexterity.
To find support for the effect of firm size (Hypothesis 4) on the relations in the conceptual model a moderation mediation test (Table 7) was conducted. The moderation mediation test was performed in Process (see also appendix for results).
To control and back up above results, I performed another regression analysis in SPSS. For this analysis a moderator variable for External Networking (Mod_Extnetwork) and for Absorptive Capacity was computed by multiplying the variable by the computed variable SMEorLargefirm (MKBtot). See table 8 for the results.
Table 8 Moderation regression analysis
Innovative Ambidexterity R2 R2 adj. R2 Change Sig. F. Change B SE B Sig. Model 1 0.296 0.284 0.000 Absorptive Capacity .242 .337 .000 External networking .316 .310 .000
SME or Large firm .351 .182 .006
Model 2 0.317 0.297 0.021 0.080
Absorptive Capacity .246 .342 .000
External networking .368 .361 .000
SME or Large firm .318 2.477 .014
Mod_Extnetwork -.110 -1.448 .149
Mod_Absorp -.063 -1.299 .196
Table 7 Moderator mediation effect
Absorptive Capacity Innovative Ambidexterity R-square 0.1231 0.3171
int_1 (Extnetwo x SMELarge : AbsCap) 0.3065* int_2 (Extnetwo x SMElarge : InnAmb) -0.2613*
Conditional Direct effect SME 0.2412 Conditional Direct effect Large firms 0.5024 Conditional Indirect effect SME 0.0620 Conditional Indirect effect Large firms 0.1374
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The variable SMEor Large significantly influence the variable Innovative Ambidexterity, but it does not moderate significantly the interaction between external networking and innovative ambidexterity, neither had it moderated significantly the interaction between external networking and absorptive capacity.
Although both of the tests were not significant (p >.05) I noted differences between the effect of firm size on respectively Absorptive capacity and Innovative Ambidexterity. More over the direct conditional effect on Innovative ambidexterity is higher than the indirect effect through Absorptive capacity. The direct conditional effect of large firm on the relation between external networking and Innovative ambidexterity is higher than for SME firm, indicating that large firms have more benefit from external networking than SME firms. In sum, since the outcomes of the moderation analysis is not significant, hypothesis 4, the influence of firm size on the relation is not supported.
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6. Discussion
The results confirm that external networking positively influences the level of
innovative ambidexterity. Moreover, absorptive capacity positively mediates the relationship. The moderating role of firm size was tested, but was not significant. An explanation for this could be found in the fact that the chosen SME firm size (< 250 employees) still constitutes firms with a sufficient resources and slack to innovate. Another possible
explanation could be found in the dynamic capabilities literature where Teece argued that not only scale and scope of the firm is important, but moreover an entrepreneurial management of firm is important (Teece, Pisano et al. 1997). In this sense also the age of the firm could play role because over three-quarter of the firms exist longer than fifteen years. Although the moderation analyses did not show significant evidence of the moderating role of firm size, differences in outcomes between SME and large firms are apparent. The results show that the direct effect of external networking on the innovative ambidexterity is for large firms larger than for SME. This indicates that large firms apparently are more involved and benefiting from external networking than SME firms. This is in line with the findings of the study by Van de Vrande et al (Van de Vrande, De Jong et al. 2009) showing that large firms are not only involved with clients and suppliers but also with universities and knowledge institutes, in contrary with SMEs who are leas involved with universities and knowledge institutes.
The role of absorptive capacity in acquiring knowledge is confirmed, although the results show that the positive mediation effect on the relation between networking and
ambidexterity is limited. The collaborations with external actors provide both new knowledge and reflect the existing knowledge base of a firm. Within a large firm, where already a broad knowledge base exists, the positive effects of networking could therefore be explained. For SMEs, where the knowledge base is limited due to constraint in slack and resources it is more difficult to profit from external networking. On the other hand firms with limited resources and knowledge base are supposed to be forced to search for collaboration outside of the firm. An emphasis on external networking is then expected, however finding show that this only partially the case. The results of external networking do show that firms act intensively with customers and suppliers. This will lead to innovation, however in most cases only
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a more explorative knowledge in order to come to more radical innovations is obtain new fundamental knowledge needed, in which universities and knowledge institutes can provide. The results confirm that large firm are more active with universities and knowledge institutes.
In the relation between external networking and innovative ambidexterity the role of absorptive capacity is further explained. The ability to acquire and integrate knowledge within the firm is essential to become innovative ambidextrous. The results show significantly
differences in SME and large firm in their external networking and the role of absorptive capacity. Moreover the interactions with clients and suppliers are good for incremental changes and working together with governmental organisations and universities lead to continuous and more radical innovations. According to the literature, in order to attract new knowledge for the firm there is a need for a bases of knowledge within the firm, so called absorptive capacity.The absorptive capacity (Cohen, Levinthal 1990) expand the benefits of external innovation sourcing both on innovativeness and financial performance (Rothaermel, Alexandre 2009). Moreover firms have to face the challenge to become and keep the firm ambidextrous in a way that they pursue both exploitation and exploration of the firms’ resources. Especially for SME firms it is a challenge to extend limited knowledge resources. Smaller firms tend to exploit knowledge more than larger firms where the larger firm have the ability and resources to explore and acquire knowledge. The smaller firms have a need to together with others in a network to benefit from each other’s resources. Firms interact in external networks for many reasons, including the share the cost and risks of research and development, large projects, or to develop new markets or penetrate new markets.
The strategy theory is continuously in pursuit of the competitive advantage of firms. The theories evolve from an industry orientation with an outside in approach to the resourced based view (RBV) with an inside out approach (Porter 1980, Bain 1968, Penrose 1959, Barney 1991, Wernerfelt 1984). On the premises of extended RBV and the dynamic capabilities view and in line with the concept of open innovation, the role of external
networking as capability to become an ambidextrous firm is theorized. The network theory is applied to investigate the dynamics of resources from outside of the firm. Based on the theory firms, firms need to innovate and adapt continuously in rapidly changing markets
environments. Accordingly firms needs both need to be exploitative and explorative
innovative. For firms to be able simultaneously exploit and explore innovation, acquiring and integrating new knowledge is a dynamic capability needed. For SMEs with a limited
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resources the need for attracting external knowledge is more evident than for large firms. This research underlines the necessity for SMEs to manage external networking more strategically so it becomes not only a dynamic capability but moreover a competitive advantage.
Chesbrough (Chesbrough, Vanhaverbeke et al. 2006) underlines the need for open innovation especially for SME firm as a way to support innovation through interaction with other firms. In this perspective the debate is not whether the locus is SME or large but the more a debate of the collaboration between SMEs and large firms and SMEs between SMEs. For example the Dutch chip machine manufacturer ASML, which originated originally from the Philips research lab, on one hand teamed up with their major customers Samsung and Intel, and on the other hand they collaborate with SMEs and a technology start-ups in their search for advancing the chip technology. Despite of their large internal R&D infrastructure, their strategy is collaboration within a technology network.
These results are also managerial important for firms to manage external relations more effectively, not only with clients and suppliers but also with universities, knowledge institutes and governmental organizations. Previous research on the relation between absorptive capacity and knowledge institutes confirm that collaboration with knowledge institutes in fact can play a role to build the absorptive capacity within the firm (Spithoven, Clarysse et al. 2011). SMEs could benefit more from external networking and so expanding their knowledge base to innovate. For firms, the need for networking is not only because of the lack of resources but also as part of their strategy. The business environment is becoming a network environment where knowledge and resources are spread between partners more easily. In this research the differences in level of collaborations between actors show the under investment in collaboration with universities, government and knowledge institutes. It is unmistaken that SME need to invest in this relation, but also the network actors themselves need to invest in collaborations with firms. The government plays a mediating role, especially on a regional network level. They play an active role in bridging the relationships between firms, knowledge institutes and universities. To do so the Triple Helix model (Etzkowitz, Leydesdorff 2000, Etzkowitz 2008) is more and more used, the Triple Helix model is a collaboration form where government, knowledge institutes and industry collaborate. This is performed on an industry or sector level, and on research program level.
