Dynamic Managerial Capabilities Research Articles

Target Costing in the Automotive Industry: A Case Study of Dynamic Capabilities

Management accounting provides a range of non-directive techniques that can be adopted, implemented and discarded at the organization’s will. Management accounting is embedded in routines that satisfy the definition of dynamic capabilities because those routines aid organizations to achieve new resource configurations. The application of specific management accounting techniques has not previously been studied in their function as dynamic capabilities. The literature of dynamic capabilities provides a lens through which management accounting techniques can be seen to leverage organizational resources. The paper describes the case study of the introduction of ‘target costing’ for purchased components within the supply chain of a division of a multinational, non-Japanese automotive assembler faced with considerable cost pressures. The paper makes three specific contributions to the literature. First, the dynamic capabilities literature is applied within management accounting to show how the adoption of particular techniques in particular organizational settings can provide decision useful information for the improvement of substantive capabilities and improvements in the resource base. Second, a revised model of dynamic capabilities is presented which takes into account the hierarchical and inter-related nature of resources and capabilities. The managerial role is emphasised through the role of managers in accessing external knowledge resources, transferring that new knowledge into new or modified organizational routines and using that knowledge to develop substantive capabilities, thereby leveraging the use of internal organizational resources. Dynamic capabilities must be learned and embedded within organizational routines. These routines include management accounting routines. Third, the literature of capability lifecycles has been expanded to reflect some additional causes of failure of dynamic managerial capabilities. Path dependency, structural inertia, and psychological commitment have previously been identified as impediments to adopting new dynamic capabilities. To this list the present case study adds external pressures, and organizational politics. A failure to understand epistemic issues and differences in cultural, organizational and strategic issues may also have contributed to the failed implementation.

Cognition and Renewal: Comparing CEO and Organizational Effects on Incumbent Adaptation to Technical Change

We investigate the conditions under which managerial cognition affects the timing of incumbent entry into a radical new technological market. We address this question using a longitudinal study of communications technology firms entering the fiber-optics product market. Using a hazard rate model, we investigate the relevance of cognition based on the direction of CEO attention. We find that attention toward the emerging technology and the affected industry is associated with faster entry, and attention to existing technologies is associated with slower progress. Second, we assess the extent to which the effect of cognition is dependent upon the levels of relevant organizational factors and find that CEO attention to the emerging technology may amplify the effects of industry orientation. Managerial cognition is important in understanding organizational outcomes, and considering both the direction of cognition and its interaction with organizational factors provides a more nuanced view of entry behavior. These results contribute to the literatures on incumbent response to technical change and new product development by suggesting that context-specific managerial cognition has a separate and important influence on the degree and direction of strategic renewal. We argue that managerial cognition is therefore a dynamic managerial capability that can shape adaptation by established firms.

Regulatory reform and managerial choice: an analysis of the cost savings from airline deregulation

AbstractThis paper explores the question of how the differential exercise of managerial choice can facilitate organizational adaptation and improve efficiency over periods of regulatory change. We address this question in the context of the US airline industry, with a detailed decomposition of an airline cost function. Our findings suggest that managers employ choice in unconstrained domains to counteract the effects of constrained or pre‐determined choices. This is an adaptive mechanism that helps firms adjust to environmental change or maneuver over a rugged landscape. We view this as a type of dynamic managerial capability for achieving dynamic fit under changing conditions. Copyright © 2008 John Wiley & Sons, Ltd.

Managerial discretion and internal alignment under regulatory constraints and change

AbstractThis paper investigates the effects of regulatory constraints and their relaxation on managerial discretion and internal fit in the context of the U.S. airline industry. Our results suggest that when managers' discretion is limited in one realm of choice, they compensate by using their greater level of discretion in some other arena to achieve internal fit. We show that the pursuit of fit matters, in the sense of having measurable efficiency consequences, and that fit trumps ‘best practice,’ at least in this context. In this respect, our findings provide a validation of the contingency perspective on internal fit. The ability to achieve fit under changing conditions may express a dynamic managerial capability necessary for adaptive organizational change. Copyright © 2007 John Wiley & Sons, Ltd.

Corporate effects and dynamic managerial capabilities

AbstractCorporate effects in variance decomposition capture heterogeneity of business performance derived from factors internal to firms at the corporate level. Most estimates of corporate effects do not include effects associated with fluctuations in returns over time, except insofar as the fluctuations affect the average corporate return for the time period in question. Exclusion of the time‐varying dimension of the corporate effect makes it difficult to fully understand the effect of corporate strategy and the actions of corporate managers, particularly in response to a changing environment. The evidence in this article shows that within a single industry, where managers face the same external environment, time‐varying corporate effects associated with corporate level managerial decisions are statistically significant. We introduce the concept of dynamic managerial capabilities to underpin the finding of heterogeneity in managerial decisions and firm performance in the face of changing external conditions. Copyright © 2003 John Wiley & Sons, Ltd.