How do formalization, centralization and integration impact dynamic knowledge-based capability?

Abstract

Dynamic capability is a fundamental concept for firms to achieve competitive advantage. In the past two decades, researcher have studied the impact of dynamic capability on the business, financial, and innovative performance of organizations; however, it is clear that the results achieved by some companies are superior in terms of the development and application of dynamic capability. This difference in terms of the results achieved can be explained by factors related to the organizational structure and, therefore, this research analyses the impacts of the organizational structure on knowledge-based dynamic capability. Partial Least Squares (PLS) was applied to a sample of 192 Brazilian manufacturing companies to analyze our theoretical premises. Our research contributes to the literature by showing how the components of the organizational structure (formalization, centralization, and integration) affect the two elements of knowledge-based dynamic capability (knowledge absorptive and transformative capacity). Previous studies indicate that less mechanical structures, that is, structures with lower levels of centralization and formalization, are favorable for the development of dynamic capability. In a different way, our results indicate that formalization and centralization act differently in relation to the absorptive capacity transformative capacity.