I n n o v a t i o n S t r a t e g y a n d A b s o r p t i v e
C a p a c i t y a s A n t e c e d e n t s o f I n n o v a t i o n
P e r f o r m a n c e
A n e m p i r i c a l s t u d y o n a b s o r p t i v e c a p a c i t y a n d a p p r o p r i a b i l i t y i n i n n o v a t i o n s t r a t e g i e s a n d i t s r e l a t i o n t o i n n o v a t i o n p e r f o r m a n c eMaster Thesis
Wouter Kracht Student Number: 5776481University of Amsterdam – Amsterdam Business School MSc Business Administration – Entrepreneurship and Innovation Supervisor: Dr. T. Gruijters
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Statement of originality
This document is written by Student Wouter Kracht 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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P r e f a c e
This thesis is written as the final assignment for the Master Business Studies at the University of Amsterdam. This master thesis has provided me with the opportunity to show what I have learned during my study, the insights or Future Advisory and the interests I have in the topic of transforming external knowledge to stimulate innovation performance.
I Would like to thank Jaspar Roos, Reinier Molenaar, Sofija Pajic, Pim Korsten and Ton Gruijters for the feedback given and their support during the process of writing this thesis. Also I would like to thank the respondents of the questionnaire for their contribution and participation in this research. Without them I would not have been able to perform my research and write my Master thesis.
Most of all, I would like to thank my mother, sisters and my girlfriend for their support and the opportunity that made it possible for me to finish my Master Business Studies. This Thesis is the final essay I will write for the University. The end of an Era, I’m looking forward to take control over what happens next and put theory to practice.
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Abstract
Innovation is important for any organization that has (a long term) growth strategy. In the current economy more external knowledge is generated and publically available due amongst others the rise of ubiquity of connectivity, sensors and beacons. These are vast knowledge pools that can be accessed freely by third parties. This may give cause to a shift in fast-followers’ access to useful knowledge and or harmful knowledge to the pioneer. External knowledge pools can be used within an organizations’ innovation processes. To take advantage of external knowledge pools an organization requires a clear internal structure to identify, capture and transform this potentially useful bits and pieces of information to practical outcomes. This is defined as absorptive capacity.
A gap was found in the literature concerning the relation between innovation strategies and absorptive capacity and its effect on innovation performance.
The goal of this research is to expand on the existing literature by examining a
relationship that is non-existent in the literature through researching the relationship between innovation strategy and innovation performance through absorptive capacity.
To attain this research goal a survey conducted among senior managers of 532 organizations, involved in the global Fintech transformations. 108 questionnaires were returned to perform analysis upon.
Results show that the antecedents on innovation performance previous researchers found and identified as absorptive capacity and innovation strategy are linked. Absorptive capacity is a partial mediator in the relation between innovation strategy and innovation performance, explaining part of this relation and confirming the significant contribution concerning the role of external knowledge in an organizations’ innovation performance.
Furthermore, it shows that in contrast to earlier research that potential- and not realized absorptive capacity is a determinant of innovation performance. Which has implications to practise that translate to the organizational skill of acquiring external knowledge is important to innovation performance instead of the skill of exploiting the external knowledge. External knowledge that is useful to strengthen potential absorptive capacity relation to innovation performance is not bound by protective nature.
4 This study confirms the not-invented-here faultline and points in the direction of a to a happily-found-elsewhere attitude to stimulate an organization’s innovation performance.
Structurally internalizing external knowledge flows grants the employee base
additional weapons in its arsenal to overcome the innovation challenges such as the protective nature of information. Expanding the knowledge base assets of an organization by structurally bringing in external knowledge, through for instance external instigators, lectures, workshops or simple networking events without a concrete follow-up plan, may therefor boost an
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Table of Content
Abstract ... 3
Introduction, Significance and Relevance ... 6
Introduction ... 6 Research Gap ... 7 Problem Definition ... 8 Academic Relevance ... 8 Structure of Thesis ... 9 Literature Review ... 10 Innovation Strategy ... 10
Absorptive Capacity as Innovation Strategy ... 12
Innovation strategies: Absorptive capacity & Appropriability ... 17
Conclusion ... 19
Hypothesis ... 21
Methodology ... 25
Population and Sample ... 25
Measurements and Scales ... 27
Innovation Strategy ... 27
Potential- and Realized Absorptive Capacity ... 28
Appropriability Mechanisms ... 29
Innovation Performance ... 30
Control Variables ... 31
Data Analyse Techniques ... 32
Results ... 32
Discussion ... 37
Conclusion ... 40
Reference List ... 42
Appendix ... 45
Appendix A: Survey on use of External knowledge in Innovation per Innovation Strategy .... 45
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Innovation Strategy and Absorptive
Capacity as Antecedents of Innovation
Performance
Introduction, Significance and Relevance
Introduction
This digital era is signalled by severe competition and quick change. (Jung-Hyun et al., 2004). A company’s success in this situation is dependent on its innovative capabilities (Schumpeter 1934, 1942). Mounting empirical evidence suggests that entrepreneurial organization behaviour may lead to sustained competitiveness among established organizations. Market pioneering is commonly identified as one potential outcome of entrepreneurial behaviour. Not all outcomes of entrepreneurial behaviour bring value to established organizations, research even suggests that market pioneering is not necessarily a good idea. Quite often the pioneer is outperformed by the, fast, follower (Covin et al., 1999). This implicates that the timing of market entree is a tactic to be closely inspected. Hence the practical approach to the subject is whether an organizations should seek to be a pioneer or a follower for their innovations market entree in order for ultimate performance.
Market followers are focussed subsequently less on R&D than the pioneers as their products are, by definition, less distinctive and based on the harbinger of the pioneer’s product. This means that there is a higher level of external knowledge available, or a bigger knowledge pool to potentially source from, at the time preceding the market introduction of the follower than it was at the market entree timing of the pioneers’ innovation (Covin et al., 1999; Kerin et al., 1992).
In absolute terms there can be only one pioneer in the market, but multiple organizations can have the strategic intent to be the first to introduce the product first, as many of these organizations are bound to fail, market follower or imitation becomes a common market-entry innovation orientation (Zhou, 2006). Research shows that market pioneers grow neither more nor less rapidly than market followers (Covin et al., 1999), hence both are viable innovation strategies, the question an organization should ask itself, should we try to pioneer or agree on being a follower? Imitation is a shunned upon, but as stated a viable
7 innovation strategy. Imitation as a strategy should not be hindered by the not-invented-here paradigm but accept a happily-found-elsewhere as most innovation is bound to come from a certain extent of copying (Witzeman et al., 2006; Macdonald and Turpin, 2008). By reduced spending and additional information gained from the product release of the pioneer, the imitator can with a quick response even gain an advantageous position over the pioneer (Schnaars, 1994). Researchers in the field of philosophy take a different moral stance: ‘Copies are seen as intellectually uninteresting, or merely as an optimizing problem. The reasons for this are manifold. In part, we may still be wedded to a fundamentally male logic, where reproduction is deigned insignificant because of its feminine connotations. In part, the production of the post original seems to take less effort than producing the new’ (Rehn and Vachhani, 2006). To recap, the post original, or the follower innovation strategy, can have the same or better result as the pioneering innovation strategy. Hypothesising that they can reach an advantageous position in the market and or outperform the pioneers by using the benefit they have over the pioneers; having a stronger focus on external knowledge pool to which the pioneers added. Hence, from an economic standpoint choosing to produce the post original by having a strong external focus could be beneficial as a business strategy
Research Gap
Currently the healthcare and finance industry are undergoing a major overhaul by market developments that stem from an ubiquitous presence of connected devices and connectivity in general (Roos, 2014). Prognosis show that connected devices are only increasing, some go as far as to say there will be a thirty-fold increase. This is expected to lead to vast knowledge flows (Gartner, 2014). Furthermore, a notable change is showing in openness and ease in which knowledge and intangible assets are exchanged among
organizations, either voluntarily or involuntarily, that has led to more attention to what these knowledge flows contribute to innovation performance (Chesbrough, 2003). Pioneers will add more and more external knowledge to the market for (fast) followers to benefit. Preventing others from copying your own innovation is getting harder, discussions arise in how effective external knowledge can be for an organization’s innovations strategy, as innovations are prone to being copied (Macdonald and Turpin, 2008).
This study contributes to the pioneering and follower and absorptive capacity literature by examining the relation between the before mentioned innovation strategies and the use of externally acquired and applicated knowledge on innovation performance. Prior research have
8 addressed the question whether external knowledge contributes to innovation performance; absorptive capacity (Cohen and Levinthal, 1990).
Similarly, research has been performed on the role of appropriability in protecting innovations from being copied (Hurmelinna-Laukkanen, 2012). Yet, they have been not been researched together with innovation strategy in such fashion as will be described in the rest of this research to fill this gap in existing literature (Sofka and Schmidt, 2004).
Problem Definition
Previous research has focused on the effect of external knowledge on innovation performance and the role innovation strategy has in innovation performance (Sofka and Schmidt, 2004). Follower organizations can learn from pioneering organizations (Chesbrough, 2003). That would mean that follower organizations can intentionally use external knowledge to stimulate its innovation performance. This research is conducted to gain more insights in the use of external knowledge and its effect on innovation for the aforementioned innovation strategies. For this the following question will be researched.
How does absorptive capacity explain innovation performance for a chosen innovation strategy?
Academic Relevance
This research strives to expand on current literature and explain the effects of external knowledge on innovation performance for a chosen innovation strategy. The concept of pioneers and fast-followers of an innovation have long been introduced. Yet the attention to external knowledge that the different innovation strategies require has not received sufficient academic attention. Therefore connecting the variables innovation strategy to innovation performance through the use of external knowledge can prove a significant contribution (Sofka and Schmidt, 2004). Other studies on the topic of innovation or imitation strategies address the importance of future research concerning the impact of changing market
conditions on this strategic choice and have not yet been researched (Naranjo-Valencia et al., 2011).
The objective is to identify how absorptive capacity explains the effect of different innovation strategies on innovation performance under levels of appropriability. This may contribute and change innovation strategies by reshaping focus on external knowledge used in innovation.
9 A known quality of follower innovation strategies is that they can ‘free ride on the pioneers investments’ and invest less in R&D than the pioneer because of this. Investigating these elements of external knowledge through absorptive capacity, limited by appropriability, or the difficulty in obtaining and using this external knowledge, may give new insights in what qualities an organizations has to possess for being successful with a chosen innovation strategy. It has the potential to change the perception in which external knowledge is used in either strategy. The ultimate result would be moving the ‘not invented here’ faultline to a happily-found-elsewhere attitude (Drucker, 1985; Witzeman et al., 2006).
Structure of Thesis
The remainder of this thesis is structured as follows. First the literature in which the variables will be elaborated and accordingly the hypothesis will be introduced. After this a research methodology chapter will be discussed, containing the data collection method, data analysis method, sample frame, sample method and the development of the questionnaire will be explained. Following with a data results sector and concluding with the discussion and conclusions of this research.
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Literature Review
This section reviews the relevant literature of the variables innovation strategy, absorptive capacity, and appropriability mechanisms. In the literature review the important concepts and the constructs that are especially relevant for the analysis and the discussion are explained. After introducing the variables they will be linked to form the sub hypotheses which are required for answering the research question
Innovation Strategy
Timing is important within an innovation strategy. The timing of filing a patent, the timing of entering the market with an innovation (Macdonald and Turpin, 2008). ‘When is a market ready for an innovation or when is an innovation ready for the market?’ (Sofka and Schmidt, 2004). In other words timing of entering of an innovation to the market is a strategic decision (Covin et al., 1999).
Abrahamson (1996) argues that when an innovation comes to the market the organization must balance it to the norms of rationality and progressiveness for market acceptance. Where innovativeness and pioneering are associated with progressiveness and rationality with imitative behaviour. Meaning if there’s a higher level of progressiveness than the level of rationality this is likely associated with a pioneering innovation (Semadeni and Anderson, 2010). A pioneering innovation need to be balanced, it needs a level of certain level of rationality to be accepted within a market, ergo some level of imitative behaviour. This counts for the follower as well, you can have a low or high degree of rationality or imitative behaviour. The innovation of the follower is by definition not as distinct, or as progressive, as the innovation of the pioneer they followed (Covin et al., 1999).
A first mover is defined as a company or organization that is the first, or among the first, to embark upon a particular action, pioneering or pre-emptive moves in areas of business strategy, ranging from new product technologies to service offerings. A company that strives to be a first mover as an innovation is seen as a pioneer (Lowe and Atkins, 1994). Its opposite is the follower strategy, which uses the strategy of delaying the option of a new product or practice in order to be able to imitate of the pioneer (Bolton, 1993).
Being a pioneer can give an organization first-mover advantages by either producing a new product, a new service or entering a new market. Being the first in this is necessary to create a first mover effect to affect innovation performance (Kerin et al., 1992). Among these effects are entry-barriers that can be raised or a jumpstart to consumer preference formation (Kerin et al., 1992). First-mover advantages can lead to potential economic profits (Lieberman
11 and Montgomery, 1988). Being a pioneer creates the market conditions for the follower by having the consumers get used to the product or services which increases the rationality within the follower’s products and services (Lieberman and Montgomery, 1988).
Followers have certain advantages over the first mover but cannot gain first-mover advantages. They have advantages such as lower research and development costs and lower market risk, due to higher innovation rationality and therefore higher market acceptance affecting innovation performance on a different way than the pioneer (Sofka and Schmidt, 2004; Semadeni and Anderson, 2010).
Successful pioneering can rarely stop or prevent second mover imitation (Lieberman and Montgomery, 1988). These imitations reduce pioneering profits (Lieberman and Asaba, 2006). An entrepreneurial strategy for delivering innovations in which the first mover is toppled by the follower is creative imitation (Drucker, 1985). By understanding the pioneering product better than the original innovation and imitating their successes, the follower can beat the original innovator. Imitating allows businesses to establish a basic set of competences from which they can develop their own innovation later (Macdonald and Turpin, 2008). There are even claims that innovation is dominated by second-mover imitation
(Church, 2014). Or as March and Simon said in 1958: “Most innovation comes from
borrowing, not from invention’ (Cohen and Levinthal, 1990). The research of Macdonald and
Turpin (2008) states that it takes considerable amount of absorptive capacity for an organization to imitate or copy another company, hence the organizational structure and innovation processes have to be arranged in such a matter.
Both the pioneer and follower are viable business innovation strategies. The
differences in pioneering or following innovation strategies lie, besides entrée timing, within market conditions and organizational qualities. The pioneer brings a product to a different market than the follower, as the pioneer preceded the follower, hence the different market conditions apply as the market is in its essence created by the pioneer and entered by the follower (Sofka and Schmidt, 2004).
By creating the market, the pioneer creates knowledge that the follower could use. This research focusses on the use of external knowledge within innovation strategies and its effect on innovation performance.
In contrast to other studies performed, being a pioneer or a follower is seen as an innovation strategy and not as a market entrée position. There can only be several pioneers, but many companies strive to reap the potential benefits of being a first mover (Sofka and
12 Schmidt, 2004). Researching only those companies who succeeded in bringing out those who introduced the product or service as the first in the market. Not those who attempted to put the product or service on the market would not only limit the research population, but also give false results as the ‘followers’ would in their turn have tried to be ‘pioneers’ and have had an organizational intent to do so.
As stated, all innovations need a certain degree of rationality to reach market
acceptance. Most innovations depend on borrowing instead of invention to reach this level of rationality, this implicates that business can look to what happens externally of their own business in order to innovate (March and Simon, 1958). Both pioneers and followers can take advantage of this external knowledge and can therefore use absorptive capacity to innovate.
The benefit followers have over pioneers is that they can follow by example and therefore can focus their external knowledge intake more than the pioneers. Hence, followers should invest more in absorptive capacity, the ability the exploit external knowledge, than the pioneers to increase the capability of learning from others and potentially speed
implementation (Cohen and Levinthal, 1990). Absorptive capacity allows organizations to make informed decisions when to imitate or if to imitate at all (Lieberman and Asaba, 2006).
Just take Rocket Internet for example. They used their considerable absorptive capacity to copy an entire company: they imitated internet company Groupon quite literally and copied not only their business model but also their layouts and launched Citydeal in another geographical region. When the time came that Groupon was ready to go to Europe, Citydeal was sold to Groupon. This is a clear example of an organization that has as strategy to copy proven business models and follow the pioneer on the market. They translate this knowledge obtained from the market to valid businesses of their own.
Absorptive Capacity as Innovation Strategy
As stated both pioneer and follower are viable innovation strategies. A means to an end in which the end is defined as innovation performance. An organization has to be structured in such a fashion to create a fit with his desired means. To take in external knowledge and boost innovation, absorptive capacity is required.
13 Research points out that an organization can increase its innovativeness and
innovation output by enriching the company’s knowledge through integrating suppliers, customers and other external knowledge sources (Chesbrough, 2003). Organizations are increasingly using external knowledge sources to stimulate their internal knowledge creation and in the end innovative output. Sourcing for external knowledge can be critical for an organizations innovation capabilities (Chesbrough, 2003). The ability to exploit external knowledge is called absorptive capacity. “Absorptive capacity is recognized as the ability of
an organization to recognize value of new, external information, assimilate it, and apply it to commercial uses.” As was the defined term when it was introduced in 1990 and is used in
hundreds of studies (Cohen and Levinthal,1990). For which the development of the term absorptive capacity is shown in table 1 as researched by Zahra and George (2002).
Cohen and Levinthal (1990) argue that evaluating and utilizing external knowledge is a function of prior knowledge. Prior knowledge is a set of basic skills, understanding of culture, knowledge of existing technology or knowledge of a specific market among others. It is the cumulative, either explicit or tacit knowledge a person or an organization possesses. Cohen and Levinthal (1990) argue this on the prerequisite that absorptive capacity is on organization level, hence it can be seen as the cumulative of the function of prior knowledge of the individuals that work in an organization. In its fundaments the absorptive capacity of an organization depends on the level of ability of its employees to recognize valuable external knowledge as a function of their prior knowledge, align it with organizational capabilities and stimulate utilization within the organization and in this case, prove its effect on innovation performance (Ter Wal et al., 2011). If an organization strategizes to be either a pioneer or a follower it has to align its organizational capabilities. This implies the organizational choice to be a pioneer or follower is not changed in a day but the prior knowledge of employees, the knowledge base asset as organizational capabilities has to be built over time (Macdonald and Turpin, 2008).
If organizational capabilities such as absorptive capacity are a requirement for any innovation strategy then how can an organization build absorptive capacity? Studies noted that that absorptive capacity is facitliated by both internal and external factors. Internal factors such as R&D, organizational culture, cumulative knowledge within the organization to
understand and utilize the knowledge acquired (Zahra and George, 2002; Hurmelinna-Laukkannen, 2012). Other organizational structures such as job rotation stimulate potential
14 absorptive capacity, while socialization capabilities, think networking, are related to realized absorptive capacity. Organizations can temporarily augment their knowledge base by buying assets or hiring new staff, yet they become part of the organizations’ resource base. By this Cohen et al. (2000) mean that the effect of acquiring external knowledge provides a
temporary boost in innovation performance but gradually diminishes over time. Overall, strengthening the prior knowledge bases should have positive effects on knowledge
acquisition and application (Hurmelinna-Laukkannen, 2012). As stated, building a knowledge base asset takes time and effort which is why also innovation strategies that require
compatible organizational qualities are a part of an organizational choice and strategy. In line of absorptive capacity as a strategy Cohen and Levinthal (1990) argue that absorptive capacity plays a crucial role to being able to adapt to changes in the environment, sustain competitive advantages and stimulate innovations (Ben-Menahem et al., 2013). Implicating that organizations with more existing prior knowledge will be able to better recognize and evaluate the potential value of new external knowledge and to utilize it, a necessity for all organization with a long term strategy.
Table 1: Development of the term Absorptive Capacity by Zahra and George (2002)
Definition Dimensions Illustrative Studies
The ability to value, assimilate, and apply new knowledge (Cohen and Levinthal. 1990)
Ability to value knowledge through past experience and investment Ability to assimilate • based on knowledge characteristics • based on organizational or alliance dyad characteristics • based on technological overlap Ability to apply
• based on technological opportunity (amount of external relevant knowledge) • based on appropriability (ability to protect innovation)
Boynton, Zmud, and Jacobs (1994); Cohen and Levinthal (1989, 1990); Cockburn and Henderson (1998); Lane and Lubatkin (1998); Mowery. Oxley, and Silverman (1996); Szulanski (1996)
A broad array of skills.
reflecting the need to deal with the tacit components of
transferred technology. as well as the frequent need to modify a foreign-sourced technology
Human capital:
• skill level of personnel
• trained R&D personnel as percent of population
• trained engineering graduates
Glass and Saggi (1998); Keller (1996); Kim and Dahlman (1992); Liu and White (1997); Luo (1997); Mowery
15 for domestic applications
(Mowery
and Oxley, 1995)
• R&D spending and Oxley (1995); Veugelers
(1997)
Absorptive capacity requires learning capability and develops problem-solving skills; learning capability is the capacity to assimilate
knowledge-for imitation-<md problem-solving skills to create new knowledge-for innovation (Kim, 1998)
Prior knowledge base; intensity of effort
Kim (1995, 1997a,b); Matusik and Healey (2001); Van Wijk, Van den Bosch and Volberda (2001)
Table 2 Dimensions of organizations ’ absorptive capacity by Zahra and George (2002) Acquisition capacity The ability to locate, identify, value and acquire external
knowledge that is critical to operations
Assimilation capacity Capacity to absorb external knowledge. The processes that allow the new information to be analyzed, processed, interpreted, understood, internalized and classified Transformation capacity Capacity to develop and refine the internal routines that
facilitate the transfer and combination of prior knowledge with the newly acquired knowledge. The main objective is to establish how to adapt the new knowledge to the reality and the need of the organization
Exploitation capacity The organizations’ ability to use the new knowledge to commercial ends
Zahra and George (2002) propose a conceptual distinction between potential and realized absorptive capacity, that are both needed to enhance innovation performance. Potential and realized absorptive potential were introduced.
Potential absorptive capacity stands for the acquisition and assimilation capabilities where realized absorptive capacity stand for the transformation and exploitation ability of knowledge (Zahra and George, 2002). Arguing that organizations first need to acquire the knowledge through scanning the environment which enables the organization to capture relevant external knowledge that can increase knowledge assets of the organization and may
16 provide competitive benefits when utilized. Without knowledge application, acquired
knowledge is wasted (Hurmelinna-Laukkannen, 2012).
Absorptive capacity has been linked to innovation abilities many times over, see Table 1, but potential absorptive capacity is substantially less related to innovation output than realized absorptive capacity. Realized absorptive capacity can be seen as the utilized function of prior knowledge obtained whereas potential absorptive capacity is the potential function of prior knowledge (Zahra and George, 2002). According to studies one cannot function without the other, and both are required for any innovation strategy (Hurmelinna-Laukkannen, 2012). As such is potential absorptive capacity defined for this study as the organizational skill to recognize and absorb external knowledge. Realized absorptive capacity is the organizational skill to transform and exploit the recognized and absorbed knowledge.
Potential absorptive capacity is more easily built than realized absorptive capacity. Collaboration with customers, suppliers, public institutes and competitors exposes the organization more frequently to new external knowledge sources, and interaction with them should increase potential absorptive capacity but not realized absorptive capacity per se (Zahra and George, 2002; Hurmelinna-Laukkannen, 2012). For one because not all potential absorptive capacity translates to realized absorptive capacity due to market restrictions such as patents. The difference between potential and realized absorptive capacity can not be fully explained through direct relations as converting external to applicable knowledge is bound by external restrictions and regulations. These restrictions and regulations for the use of external knowledge such as patents, trademarks or other barriers, prevent a business from exploiting external knowledge (Cohen et al., 2000). An organization can have the wish to exploit external knowledge they have recognized and absorbed but when the ownership is with another party this is simply not possible (Macdonald and Turpin, 2008).
Despite the importance of potential absorptive capacity in recognizing opportunities, realized absorptive capacity is the primary source to innovation performance (Zahra and George, 2002).
Organizations within the same market or otherwise competitive organizations usually have strong absorptive capacity towards one another through overlapping prior knowledge, this overlap enables organizations to easily understand newly assimilated knowledge from competitors (Dussauge et al., 2000; Hurmelinna-Laukkannen, 2012). This allowes followers to easily understand the business proposition of pioneers. When an organizations’ absorptive
17 capacity is better developed than their competitors it can be a knowledge-based competitive advantage for the organization.
Both pioneers and followers could take advantage of external knowledge sources to improve their innovative output (Camisón and Forés, 2011). Followers can in contrast to pioneers have an outspoken strategy that can profit more from knowledge of other businesses as the market conditions have been set by the pioneer, and the external knowledge pool has been added by the pioneer’s effort.
As competitors have an overlap in prior knowledge, absorbing the knowledge and applying it to commercial uses is not an impressive feat. For this protective fences are erected between competitors to limit knowledge flows from one organization to another but in many situations valuable knowledge is still acquired and even exploited which for the organizations in question stimulates innovation (Dussauge et al., 2000; Hurmelinna-Laukkannen, 2012). Through these restrictions and regulations differences arise in potential and realized absorptive capacity. In all competitive environments rival organizations are likely to raise barriers for accessing and exploiting knowledge assets as to prevent a follower copying a pioneer, especially when no compensation is involved.
Innovation strategies: Absorptive capacity & Appropriability
As stated in the previous chapter, potential absorptive capacity is easier to develop than realized absorptive capacity. To research the effect of external knowledge on innovation performance it is necessary to look at the transition of knowledge flows between potential and realized absorptive capacity.
Zahra and George (2002) propose in their reconceptualization of absorptive capacity that the three contingencies are activation triggers, social integration mechanisms and
appropriability regimes (Todorova and Durisin, 2007). To limit the amount of variables used in this research, appropriability has been selected on grounds of having the closest link to the first variable innovation strategy and a proven positive relationship with innovation
performance (Hurmelinna-Laukkannen, 2012).
Patents, other legal protection, secrecy, lead time, complementary sales and or services and complementary manufacturing are identified as factors of appropriability (Cohen et al., 2000). Appropriability mechanisms are used for the protection of knowledge as to the purpose of keeping it in possession of your organization only and prevent it from being exploited by
18 others (Sofka and Schmidt, 2004). However, appropriability differs per industry, for example in the medicine industry patents have a different duration than in say the manufacturing industry (Zahra and George, 2002).
Previous research states that appropriability has a relation to absorptive capacity development and that the nature of this relation is two-sided (Hurmelinna-Laukkannen, 2012). On the one side it stimulates the development of potential absorptive capacity and on the other side it limits the knowledge flow between potential- to realized absorptive capacity (Zahra and George, 2002, Hurmelinna-Laukkannen, 2012). In other words the duality of this nature is that it is both a barrier as well as a stimulus to develop absorptive capacity.
Appropriability of other organizations are a barrier to develop absorptive capacity for your organization as it limits the knowledge flow from potential- to realized absorptive capacity. Yet high levels of appropriability mechanisms for your own organization causes an increase in absorptive capacity. This is due to the access the organization can give third parties to their knowledge, without risk of ownership and extensive relations can be pursued to build the absorptive capacity (Sofka and Schmidt, 2004). This means that on organization level the appropriability regime sets the frames in which the organization can operate and protect its innovations sufficiently from being copied. With strong organization-level
appropriability innovations are protected well from copying and many external relations can be pursued in order to increase the organizations’ absorptive capacity. Concerning
organization-level appropriability a clear relation has been found in knowledge acquisition, due to more external relations without fear of being copied, but contradicting results for knowledge exploitation are found (Sofka and Schidt, 2004, Zahra and George, 2002).
Strong regimes of appropriability on industry level limits knowledge flows within an industry and therefore are expected to disrupt the development of realized absorptive capacity. When appropriability levels are high within an industry, it is harder for all
organizations to take advantage of external knowledge then when the appropriability levels are low. When appropriability is low this may give cause for imitation strategies and potentially increase the follower’s innovation performance, but disrupt pioneers first mover profits (Zahra and George, 2002). Low levels of industry appropriability are suggested to give high incentives for investing in absorptive capacity as copying becomes a viable option (Cohen and Levinthal, 1990).
19 The options to protect knowledge and innovations from being copied differ per
industry and is dependent on the available mechanisms. For industries that have strong appropriability regimes, such as chemicals and pharmaceuticals, is it harder to pursue imitation strategies, yet there are several industries where it is not possible to reach such a high appropriability, which makes being a fast follower an option (Dodgson et al., 2008).
As such appropriability can be good for an organization when it is high at organization level and low within the industry to maximize external knowledge intake.
For this research the appropriability of the industry is in question as the variables pioneering and follower already consider the differences in scope of external knowledge used to measure innovation performance. Hence the variable appropriability can be considered as an industry wide external factor, the fence that is raised for exploiting external knowledge of and by all competitors (Hurmelinna-Laukkannen, 2012).
The level of industry appropriability is largely dependent of the activities of individual organizations, it is influenced by managers in how they can best appropriate returns of their innovations, and how they organized their business internally (Teece, 2000). In a rapidly changing environment with increasingly difficult patent filings organizations do not always choose to file for patents on their innovations. Even if the organization gets to justly protect its innovation, time affects this protection and 60% of the patented innovations have already been imitated within 4 years, which diminishes returns (Mansfield, 1987). A combination of multiple appropriability mechanisms have proven to be most effective in protection an innovation and creating a strong appropriability regime (Cohen et al., 2000).
Zahra and George (2002) identified realized absorptive capacity as a primary source for innovation performance and appropriability as a limitation between the knowledge flows of potential- and realized absorptive capacity. As the appropriability level of the industry accounts for the entire industry this effect is expected to disrupt this knowledge flow. This suggests a negative relationship between appropriability and realized absorptive capacity.
Conclusion
The literature analysis highlights aspects of innovation strategy such as first and second mover advantages. Being the first gives a first mover effect resulting in increased innovation performance and one of the advantages mentioned for followers is free riding on the first
20 movers innovation (Kerin et al., 1992). The introduction of an innovation is in fact the timing of the introduction of a product or a service. To have a successful introduction it must balance the level of its rationality and progressiveness (Abrahamson, 1996). Rationality is associated with imitative and following behaviour (Semadeni and Anderson, 2010). Even a pioneering innovation needs a level of rationality. Most innovation comes from borrowing, not from
invention (Cohen and Levinthal, 1990). Both the pioneer and the follower can benefit from
borrowing instead of invention and look to externally to enhance their innovation processes. To ability to exploit external knowledge within an organization is called absorptive capacity (Cohen and Levinthal, 1990). This construct has been researched by many
researchers, yet not linked to the introduction timing of an innovation. Ben-Manahem et al. (2013) states that absorptive capacity stimulates innovation. In the reconceptualization of the construct absorptive capacity by Zahra and George (2002) to potential absorptive capacity and realized absorptive capacity arguments are laid bare that are one the keystones for this
research: arguing that organizations first need to acquire the knowledge through scanning the environment before it is able to exploit the external knowledge (Hurmelinna-Laukkannen, 2012). Pioneering organizations have access to a different pool of external knowledge than the follower organizations as they are theorized to take advantage on the first movers
innovation. In other words, use external knowledge that originates from the market created by the pioneer. Competitors are deemed to have an overlap in prior knowledge and can therefore easily use external knowledge to enhance innovation performance (Zahra and George, 2002) This theory excludes pioneering organizations that are theorized to have yet to create the market. Concluding that existing theory is lacking in the relation of innovation strategy and the usage of external knowledge to benefit innovation for the different innovation strategies.
In the reconceptualization of absorptive capacity, appropriability is introduced as one of the contingencies (Zahra and George, 2002, Todorova and Durisin, 2007). Appropriability is defined as the level in which an innovation can be protected from copying. This either allows organization to be more open in their communication when their knowledge assets are well protected or to simply to raise high fences to protect their knowledge assets. The pioneer creates the market and can raise protective fences to prevent the follower from taking
advantage of the knowledge that stems from his innovation. The market conditions are different for the pioneer and the follower. Logically, so are the appropriability conditions.
Research has not expanded to the point in which the relation between, appropriability, absorptive capacity and innovation strategy is investigated, although the variables have been investigated individually. In order to innovate faster, more efficiently and to stay, or even get
21 ahead of competition, variables that influence innovation performance have to be investigated further. The basis of this research’ desired knowledge product is in relation to the research gap surrounding innovation strategy: to what extend is external knowledge used to benefit innovation performance for different innovation strategies, and is this influenced by appropriability? This will be investigated in the following chapter.
Hypothesis
The nature of this research is explanatory and quantitative. Therefore the desired knowledge product is guided through a set of hypothesis based on, in this case, the gap in the literature. The literature gap means that the variables have been investigated individually but not simultaneously in a covering model. To answer the main research question: how does absorptive capacity explain innovation performance for a chosen innovation strategy?, multiple hypotheses are formed.
Innovation strategy is a proven determinant of innovation performance in literature (Covin et al., 1999). Expected is that this is a causal relationship that is partly explained through absorptive capacity as a mediator relation (Saunders et al., 2009). This is expected to be the case for both the pioneering organizations as the follower organizations (Sofka and Schmidt, 2004). However, from the differences in market-entrée timing and available knowledge pool at the time of introducing the innovation to the market this relation to innovation performance through absorptive capacity may differ. The reconceptualization of Zahra and George (2002) allows for a separation between the external knowledge intake and the external knowledge used. This relation is under multiple influences of which one the barrier to exploit knowledge, defined as appropriability. To investigate these relations, it is required to start by investigating the relation amongst the variables individually. Together they form the following
22
Hypothesizing that the relation between innovation strategy and innovation
performance is partly dependent on the use of external knowledge within an organization’s innovation processes. Part of this study’s intent is to show that absorptive capacity partly accounts for the relationship between innovation strategy and positively effects innovation performance. The influence absorptive capacity has in the relation between innovation strategy and innovation performance is expected to be of a causal nature, arguing this to have a mediating effect between the variables (Saunders et. al., 2009).
H1: Absorptive Capacity partially explains the relation between Innovation Strategy and Innovation Performance
As argued in the previous segment of this thesis, the timing of bringing an innovation to the market is crucial and creates different circumstances for the introduction of an
innovation for the pioneer than for the follower concerning the use of external knowledge. As the pioneer always enters the market before the follower, the follower enters a market with a set of conditions and thus available information that is set and created by the pioneer (Sofka and Schmidt, 2004). This conditions can either be negative, that the follower are given a set of limitations by the conditions, or can be positive as the pioneer provides an example which can be used as external knowledge for innovations (Kerin et al., 1992; Zhou, 2006).
23 Absorptive capacity is expected to have a stronger effect on innovation performance for the pioneers in comparison to the followers, as the followers have the possibility to copy from their predecessors they are less likely to invest a lot in absorptive capacity. Therefore is expected that the level in which an organization uses external knowledge has an effect on innovation performance and is dependent on its innovation strategy.
H2: Absorptive Capacity has a stronger explanatory relation to Innovation Performance for the pioneering innovation strategy than for the follower innovation strategy
Zahra and George (2002) propose a segmentation in absorptive capacity: potential absorptive capacity and realized absorptive capacity. As stated in the previous segment of the thesis: potential absorptive capacity stands for the acquisition and assimilation capabilities where realized absorptive capacity stands for the transformation and exploitation ability of knowledge.
The theoretical relation of potential absorptive capacity and realized absorptive capacity is that realized absorptive capacity is always a function of potential absorptive capacity. Not all knowledge that is acquired and assimilated is used and knowledge that is not acquired or assimilated cannot be transformed or exploited. As such is the knowledge
exploited in realized absorptive capacity obtained in potential absorptive capacity (Zahra and George, 2002). This relationship is potentially explained by appropriability mechanisms that prevents external knowledge from being transformed and utilized through for instance patents or trademarks (Cohen et al., 2000). The higher the level of appropriability of the industry the more effect this construct is hypothesized to have on the relation between potential- and realized absorptive capacity. Indicating that the relationship between the potential and realized absorptive capacity is a function of the variable appropriability suggesting a moderating effect (Saunders et al., 2009).
24 H3: Appropriability mechanisms in the industry have a negative moderating effect on the relation of potential absorptive capacity and realized absorptive capacity
Followers are expected to have a more narrow focus in realized absorptive capacity as their innovation is more rational than the innovation of the pioneer, or as Atuahene-Gima (1996) argues, it has a lower newness of innovation to the consumer which is arguably
because the follower had the opportunity to learn from the pioneer and used that innovation as inspiration for their own (Sofka and Schmidt, 2004). If the ‘learning-by-watching’ holds up this would implicate that potential absorptive capacity for followers is different than that off the pioneers (Bolton, 1993). Argueing that followers can watch on a narrower scope to their external environment for their innovations than pioneers would implicate that the potential absorptive capacity is lower than that off the pioneers.
H4: Pioneering orientated organizations have a stronger focus on potential absorptive capacity than the follower oriented organizations
Followers on the other hand are expected to have a stronger focus on transforming and exploiting the limited external knowledge acquired and assimilated and will be organized differently than pioneers because of it. Therefore are followers hypothezised as having a stronger focus on realized absorptive capacity than the follower oriented organizations.
25 H5: Follower oriented organizations have a stronger focus on realized absorptive capacity than the pioneering oriented organization
Summary of Hypothesis
H1 Absorptive Capacity partially explains the relation between Innovation Strategy and Innovation Performance
H2 Absorptive Capacity has a stronger explanatory relation to Innovation Performance for the pioneering innovation strategy than for the follower innovation strategy H3 Appropriability mechanisms in the industry have a negative moderating effect on
the relation of potential absorptive capacity and realized absorptive capacity H4 Pioneering orientated organizations have a stronger focus on potential absorptive
capacity than the follower oriented organizations
H5 Follower oriented organizations have a stronger focus on realized absorptive capacity than the pioneering oriented organization
Methodology
The following chapters will elaborate on the methodology of this research. First the population and sample will be introduced, followed by the measurement and scales of the questionnaire. Concluding with the data analysing techniques.
Population and Sample
This study is of explanatory nature, seeking influence and relation effects, which is best measured by a survey. Given the duration for this research, approximately six months, and the
26 low cash availability a questionnaire method provides the best reach for this study. To
enhance efficiency this survey is sent out through a program called SurveyMonkey making this a web-based survey (Saunders et. al., 2009).
For generalizable results and market access purposes is the population limited to companies that are involved with the current Fintech wave and offer financial products and services. Fintech is a contraction of the word financial and technological and a field which undergoing transformational developments, enhancing the studies relevance. A list of suitable organizations is drawn up together with a field expert to create a sampling frame. From this frame a random sample is drawn as to give all organizations an equal chance to participate in the study for validity purposes. This study is not bound to any geographic location as external knowledge is generated not bound to location, a control variable has been added to verify this presumption. To determine the validity of these choices control variables are added for in which industry the responded is active and in which region(s) they, predominantly, offer their products and services. Reasons for this will be given in the variable appropriability.
As a prerequisite to participate in this research organizations have to exist longer than 3 years and have more than 10 employees. Given the expectation that younger organizations have a less clear innovation strategy and act more iterative they are excluded from the study, to control for this expectation a control variable has been added. In the study of Covin et al. (1999) was accounted for a minimum of 50 employees. According to field Expert Roos (2014) are the a lot of startups involved in the described Fintech wave with less than 50 employees. Therefore more than 10 employees was set as a prerequisite and a control variable added to confirm whether this does not influence the results.
The questionnaire is filled in by a senior manager that has at least 3 years of experience within the organization, to make sure they possess the appropriate knowledge. This prerequisite was replicated from Covin et al. (1999) however altered slightly, Covin et al. asked the most senior manager to fill in the questionnaire. This is replaced by at least 3 years in the organization as not to risk a bad response rate for this study given the limited time frame. The sample size is N=532 to decrease the margin of error and gain confidence in the reliability. The response rate was relatively high, due to a buzz created by field expert Roos who released a preliminary report on external knowledge in innovation and interests were expressed in advance to participate within this research (Roos, 2014). Before the survey was sent out a pilot study, among innovation experts, peers and a diverse group of young and old, was undertaken to check for faults within the first draft of the survey. The survey contained a letter that served as an invitation to participate in the research in which the research is
27 introduced, the rights of the respondent are explained, anonymity and confidentiality is
promised. Two reminders followed the invitation to participate, each 10 days after the
previous email contact. As an incentive to participate in the research a report on innovation by Roos and fellow innovation experts was released and the respondents to the questionnaire received an automated digital copy of the rapport.
Measurements and Scales Innovation Strategy
For this study, innovation strategy is a dependent variable. The measurement of this variable was replicated from the research of Sofka and Schmidt (2004) and uses items that originate from the study of Covin et al. (1999), to create two groups within this variable, the pioneering innovator (pioneer) and the imitator (follower) giving this construct 4 items total. As this variable is about strategy it requires a period of impact. The respondent is asked to answer question regarding their innovation strategy over the last two years if it has been being the industry leader in the introduction of new product and services or whether it has been reacting to innovations of competitors. Therefore the items of Covin et al. (1999) have to be
transformed to match the time period of two years. This period of two years is based on the study of Sofka and Schmidt (2004) who uses the same timeframe.
The scales of Covin et al. (1999) (=.79) are measured in a seven point Likert scale. For which a high value of agreement reflects an innovative orientation whereas a low value
represents an imitation strategy. The question is posed in the research of Covin et al. (1999) as
‘please specify to what extent the following statements fit the innovation strategy of your company’, after transforming the question became ‘please specify to what extend the
following statements fit the innovation strategy of your company over the last two years. The same items have been used as in the study of Covin et al. (1999), for example the first item was the statement ‘we compete heavily on the basis of being first to market with new
products’.
Pioneering behaviour or lack thereof, is seen as consistent strategic practise amongst organizations (Covin et al.,1999). According to the reasoning of Sofka and Schmidt (2004) can an organization have the intention to be a pioneer, but in practice turn out to be a follower, thus imitator, due to competition, yet strategic choices to be a follower lead to different emphasis within an organization. For simplicity sake the pioneering innovator scale is dubbed as such rather than pioneering-to-follower scale. Following this reasoning a pioneer does not necessarily has to be operationalized as a nominal variable. Hence pioneering
28 behaviour does not per se translate to pioneering output. Therefor for this measurement is conceptualized similar the studies of Sofka and Schmidt (2004) and that of Covin et al. (1999) who place the concept if innovation strategy in the same league as corporate entrepreneurship. The concept of corporate entrepreneurship is placed on a continuum that allows varying levels of pioneering behaviour to be called pioneer. To create a cut-off point between where an organization is called a pioneering or a following organization the median is chosen as it reflects the proportional behaviour amongst the respondents concerning the follower-to-pioneering intent ratio. For this the mean scores that are higher than the median are dubbed pioneer and the respondents that score low are dubbed as follower to create two groups to perform analysis upon. A mean or median split of often considered as unnecessarily arbitrary, but this can be legitimized when an emphasis is placed on the ratio differences amongst the respondents in a continuum. To control whether this ratio is appropriate a variable had to be added to take away its somewhat arbitrary nature. As argued in the research of Zhou (2006) and Covin et al. (1999) proactiveness is a significant part of innovation strategy in propensity to its environment. As the pioneering intent to be the first or one of the first, in the market and the continuum scale for that matter requires a proactive approach. Therefore a question was posed in the survey to relate the pioneering and follower continuum to proactiveness of introducing new products and services in comparison to its competitors, again over the last two years. As stated the scale is a continuum and there are no extremes hence the comparison between is the pioneer and the follower is of relevance. The item was therefore posed as follows: ‘for the following statement please fill in the word(s) on the blanks that suits best for your business proactiveness in introducing new products and services in comparison to its competitors over the last two years’. This was measured by a 5-point Likert-type scale, whereas 1 represented ‘ very seldom’ and 5 represented ‘ very often’ (Covin et al., 1999).
Potential- and Realized Absorptive Capacity
For the effect of innovation strategy on innovation performance is a mediator role for the variables potential and realized absorptive capacity. Potential absorptive capacity is measured by 7 items and realized absorptive capacity is measured by 7 items. Answers are given on a 1 to 7 Likert scale and range from 1: ‘Strongly disagree’ to 7: ‘strongly agree’. The questions for potential absorptive capacity relate the extent to which an organizations is capable of acquiring and assimilating external knowledge and are posed as ‘please specify to what extent your company uses external resources to obtain information, to which the respondent was to answer to statements such as ‘the search for relevant information concerning our industry is
29 every-day business in our company’. The items that are meant for measuring the acquiring of external knowledge are proven valid in the study of Flatten et al. (2011) (=.73) as counts for assimilation of external knowledge (=.85). This study of Flatten et al. (2011) had no intention to prove acquisition and assimilation of external knowledge had internal validity yet is
mentioned in the study as significantly correlated, which is the same for the realized absorptive capacity variable. Therefore this study argues that the conceptualized review of absorptive capacity still holds and potential absorptive capacity and realized absorptive capacity can be consistently measured separately (Sofka and Schmidt, 2004).
The realized absorptive capacity variable questions are posed such as ‘please specify to what extend the following statements fit the knowledge processing in our company’ to which the respondents replied to statements such as ‘our employees have the ability to structure and to use collected knowledge’. The variables had a higher internal consistency than the variables of potential absorptive capacity, the transformation of external knowledge (=.93) and the exploitation of external knowledge (=.80)
The way of measuring potential absorptive capacity and realized absorptive capacity is based on Flatten et al. (2011) who devoted an entire research paper on the development and validation of the scale of absorptive capacity. Previous researchers such as Camisón and Forés (2011) focussed for the variable absorptive capacity on the level of absorptive capacity in comparison between competitors, as this comparison is already made within this research this is not required and potentially gives a higher validity due to managers only answering about the capacity to for instance transforming knowledge of their own organization compared to that of their industry peers. Whereas other researchers used other methods for measuring absorptive capacity such as R&D intensity predominantly in the early 2000’s as reflected upon in the research of Flatten et al. (2011). This was deemed not an appropriate method for the time frame and accessibility of knowledge for the sample for this research.
Appropriability Mechanisms
As a moderating role between the mediation of the constructs of absorptive capacity is the variable Appropriability mechanisms. There are several appropriability mechanisms such as patents, copyrights, trademark protection, protection of utility models and designs, trade secret protection or even being the first mover according to Hurmelinna-Laukkanen (2012). As being the first mover is measured in another construct within this study this will not be measured within the appropriability construct. Appropriability mechanisms are different in every industry and can, but do not have to be used together to protect innovations. Hence for
30 this sample it will be required to ask questions on all items of appropriability mechanisms. The respondent was asked to answer whether ‘during the last two years, how important have the following mechanisms been in protecting the product and process innovations from (potential) competitors’ imitation. These statements were regarding the appropriability mechanism mentioned earlier. This is measured on a 7-point Likert scale for which a 1 represented a not at all important score and where a 7 represented the opposite.
All innovations are at risk to being imitated, not all innovations are protected the same way and neither do all appropriability mechanisms offer the same protection to being
imitated. To measure this the example set by Levin et al. (1987) in the Yale survey and by Cohen et al. (2000) in the Carnegie Mellon survey is followed and the appropriability
measures are given different weights. Patents are generally acknowledged to be the strongest and most enforcing method of protecting an innovation and the response is multiplied by 3. Copyright, trademark protection and protection of utility models and designs can also be relatively clearly described yet not as strong as the patents and are multiplied by a factor of 2. Trade secret protection, by law not secrecy, which is the least strong of appropriability mechanisms are valued as the response is given (Tuppura et al., 2010). The five items are summed to form a composite measure which represents the strength of the organizations average innovation protection. Internal consistency is not given as industries often vary under which the questionnaire is held and this means the appropriability mechanisms which vary in importance per industry change along with it. The Yale study and the Carnegie Melon survey are leading in measuring current appropriability mechanisms. To indicate, researcher
Hurmelinna-Laukkanen (2012) used a 7 item derivative of the Yale study which resulted in internal constancy of all items (=.70) and the 7 items combined a (=.754) as final construct, yet this is no indication of similar practises.
Innovation Performance
Innovation performance is a dependent variable and is measured by a 7-item likert scale previously used by Alegre and Chiva (2008). Numerous studies have explored the role of innovation performance and its measures. It is acknowledged that it is difficult to choose indicators that manage to measure exactly what the contribution is of innovation to an organizations performance (Romijn and Albaladejo, 2002). Within the pilot study the
variables used by Hurmelinna-Laukkanen (2012), Alegre (2006), and Atuahene-gima (1996) were used. Yet two items regarding the replacement of products and services being phased out were not well understood among the test sample. These two items are replaced by a question
31 regarding market share growth by Alegre (2008). The items are measured on a seven-point Likert scale and have an internal Cronbach’s alpha of .888. Questions were phrased as ‘Could you please state the performance of your company’s innovations compared to your
competitors over the last two years regarding the following items?’ which were items similar to the previously mentioned market share growth. The value 1 indicates that the organization performed a lot worse and a 7 a lot better that its competitor’s innovations over the last two years.
Control Variables
To account for effects of extraneous variables on the variables within this research control variables are added. As previously mentioned concerning the sample control variables for organization age, organization size, primary clients, organizations geographic sales orientation, industry and proactiveness are used as control variables.
To clarify why these variables are chosen is for organizations’ age to control the years since its founding as the innovation strategy becomes more profound after its early phase and that it may influence potential knowledge absorption as this may already be in possession when an organization is in its early years. Organizations’ size has to be accounted for because knowledge distribution, the assimilation and transformation of external knowledge, can be more difficult when the organization grows. As there can be substantial differences in the amount of employees of an organization a natural logarithm is used to rebalance these differences as a measure of the organizations’ size. The organizations primary clients are mentioned in the research of Flatten et al. (2011) that this had a potential effect on the organizations realized absorptive capacity in one of their studies which means it may
influence the flow of external knowledge and thus potential and realized absorptive capacity. The organizations geographic sales orientation is measured per continent in which the organization is active. Instead of the continent in which the organization is based, the
continent in which the organization is active is more suited when it comes to innovations and appropriability as innovation protection can be bound by regional legislations.
The population for this study is organizations involved within the current Fintech developments. However, not all organizations innovating within these transformational
developments originate from the financial services industry. An innovation can for instance be a spin-off from an organization’s core business activity. Therefore a control variable has been added. As an industry control variable the SIC industry codes are used (SIC, 2014). SIC industry codes are updated irregularly and during the pilot study it was pointed out that not all
32 industries could be placed properly with these codes, hence the variable other industry was added to cover this potential research flaw.
Data Analyse Techniques
To analyse the conceptual model the data will be coded and analysed with the statistical program SPSS. This will be done by the following steps:
- First, a frequency test will be performed to control if there are any missing values, the missing values will then be filled in by a hotdeck imputation. A hotdeck imputation replaces missing values of a similar ‘donor’ in the dataset that matches the ‘recipient’ in the given categories. This method will only be used when there are less than ten percent of missing values, in other cases list- or pairwise deletion will be explored
- Second, item that were reverse scaled will be recoded.
- Third, the internal consistency will be checked for the different constructs by controlling the Cronbach Alpha’s with a factor analysis.
- Fourth, if proven valid in the second step, means will be calculated to generate the constructs to be able to perform analysis on the conceptual model.
- Fifth, the entire model and parts of the model will be tested through running mediation, moderation and moderated mediator tests written as a script called PROCESS by professor Andrew F. Hayes Ph.D. to provide the required insights and prevent calculation mistakes required for testing the hypotheses.
- Sixth, the control variables are added one by one to the mediation, moderation and moderated mediator analysis to control for influences of extraneous factors that were not included in the conceptual model.
Results
As stated in the method section first the frequency test was performed. This test showed that of the 108 submitted responses, 20 respondents only filled in the control questions and were not useful for further analysis and were deleted. Resulting in a response rate of 20.3%. The remaining 88 responses were a sufficient amount to perform analysis upon and after filling the 5 missing values by performing an Hotdeck imputation internal consistency had to be
controlled. After recoding the required items, such as item two from the construct Innovation Strategy, the variables Innovation Strategy (α= 0.79), Potential Absorptive Capacity (α=
33 0.812), Realized Absorptive Capacity (α= 0.864), Appropriability (α= 0.901) and Innovation Performance (α= 0.815) were analysed on internal consistency. According to the rule of thumb for internal consistency no items had to be deleted as no deletion of items would have caused a significant change (>0.10) in the Cronbach Alpha and showed high internal item correlation (>0.3).
Figure 4: Hypothesis 1
Figure 4 shows that the effect of absorptive capacity has a significant direct and indirect effect between innovation strategy and innovation performance proving a relation amongst the variables. The significant indirect effect proves a partial mediation relation of absorptive capacity between innovation strategy and innovation performance.
N Mean SD INNOSTRAT 88 4.31 1.34 ACAP 88 5.36 0.86 PACAP 88 5.34 0.86 RACAP 88 5.36 1 APPRO 88 35.07 17.87 INNOPERF 88 4.7 0.85 N Mean SD N Mean SD PACAP 46 5.66 0.72 PACAP 42 5.01 0.88 RACAP 46 5.82 0.84 RACAP 42 4.86 0.94 APPRO 46 41.33 17.44 APPRO 42 28.21 15.85 INNOPERF 46 5 0.89 INNOPERF 42 4.4 0.66
Figure 3: Frequency table follower Figure 1: Frequency table Figure 2: Frequency table pioneer
