Rapprochement between the approach of Dynamic Capabilities and Offshore

DC capability has been a present perspective on strategic field since the work of Teece, Pisano and Shuen (1997). However, on operations management field, this perspective is only recently used. In this sense, three works can be highlighted. Witcher, Chau, and Harding (2008) use DC perspective to analyze operations management at Nissan in South Africa. Through a study case approach, the authors identified how Nissan used hoshin kanri¹³ and TEAs (Top Executive Audits) as dynamic capabilities to manage the implementation of strategy. This study emphasizes the whole of management team, management tools implementation, and management philosophy as types of DC on operations management perspective. In another

13 Hoshin kanri, which translates as policy deployment or policy management, is an organization-wide business process for the management of top management goals, managed as an annual plan-do-check-act (PDCA) cycle, sometimes called the Shewhart or Deming (1986) cycle. Hoshin kanri is used by most large Japanese firms operating in international markets. […] Hoshin kanri is used to involve the whole firm in breakthrough, or rapid, change. The principle is that if everyone makes some contribution to a hoshin, then the firm as a whole will have moved further forward to an extent that otherwise would not be possible through normal working (Witcher, Chau, &

Harding, 2008, p. 545).

OFFSHORE OPERATIONS

Types of offshore operations Strategic role of offshore operations Barriers to implement offshore operations Coordination of offshore operations

study, Smart, Bessant, and Gupta (2007) addressed operationalizing inter-organizational innovation networks, in both the strategic and operations management levels in biopharmaceuticals industry. The authors utilized DC perspective to explore the hole of accessing complementary resources to implement innovation through inter-organizational networks.

Wang, Klien, and Jiang (2007) in their turn used knowledge-based DC construct¹⁴ as a mediator between Information Technology support to Knowledge Management and organizational performance in manufacturing companies. The authors identified DC as showing a significant association with performance, and it is a full mediator between information technology support of knowledge management and organizational performance. The authors suggested that manufacturing management should be aware of evaluations of IT investments in terms of strategic contribution.

RBV as well as DC have started to be seen as valuable approaches to operations management literature, in order to emphasize the role of management and resources and capabilities embedded in operations (Pandza, Horsburg, Gorton, & Polajnar, 2003; Witcher, Chau, & Harding, 2008). Otherwise, operations management and operations strategy have not fully addressed capabilities development issues. This mainly occurs because capability development is an ambiguous and social complex phenomenon (Pandza, Horsburg, Gorton, &

Polajnar, 2003). In addition, operations management literature is predominantly guided by outside-in strategy approach (e.g. Porter’s Five Forces). Thus, there is a lack of studies regarding

14 Wang, Klien, & Jiang (2007, p. 2425) define knowledge-based dynamic capability as a firm’s ability to gain competitive advantage through more dynamic applications and adjustments of the firm’s knowledge base.

inside-out approaches such as assets/capabilities and strategy development, how capabilities are useful to operations management, and how companies can use capabilities (Lillis & Lane, 2007).

Offshore has implications to strategic management field because it can be considered a firm-level capability and a resource. Additionally, it can also be considered as an internal process and a business strategy, resulting from successful resource management and firm-level capabilities. Focusing on managerial and firm capabilities, a dynamic capabilities approach may be a useful perspective to address how companies develop unique capabilities in offshore (Doh, 2005).

Accordingly, offshore are considered as a strategy conducted by a learning-by-doing process. This aspect suggests that implementation of offshore is done in a continuum of stages (Lewin & Peeters, 2006a; Maskell, Pedersen, Petersen, & Dick-Nielsen, 2006). Literature suggests that there are three phases of offshore execution: offshore entry phase, when the main goal is to acquire experience and to establish presence; offshore development phase, when the main objective is to expand toward more business core activities; and offshore integration phase, when the main objective is to integrate operations globally toward expanding activity scope and capabilities (Robinson & Kalakota, 2006).

As an evolutionary process, knowledge and capabilities created and shared across locations have an important contribution to offshore success (Youngdahl & Ramaswamy, 2008).Companies have to develop capabilities to manage offshore relationships and global networks in more advanced stages of offshore operations (Carmel & Agarwal, 2002; Levy, 2005;

Levin & Peeters, 2006b; Venkatraman, 2004). Thus, skills and learning related to the managerial process of offshore are important issues (Ellran, Tate, & Billington, 2008).

Capabilities development has allowed companies to employ more complex offshore processes. However, this development is a continuous and dynamic process due to the growing complexity of offshore operations, particularly for high-skill organizational activities (Manning, Massini, & Lewin, 2008). For instance, third party companies are not merely transactional vendors; they have to integrate shared knowledge and effective management processes (Li, Liu, Li, & Wu, 2008). To do so, companies have to develop capabilities to undertake temporal and spatial distance and to achieve collaboration between work teams (Levina, 2007). Capabilities have more effect on achievement of collaboration in offshore operations than on locations and type of offshore (captive and third part) aspects (Levina, 2006). The effectiveness of shared process as offshore depends on the complementary needs and specific capabilities developed.

Large companies seem to be more attracted to offshore operations than medium and small companies. This probably happens due the complexity and the need of resources and capabilities to conduct that process (Askin & Massini, 2008).

Internal capabilities are also required to manage offshore service processes, mitigate risks, and achieve effectiveness in this process. Capability-based theories can contribute to the understanding of offshore management challenges. A capability to conduct offshore operations may be considered as a competitive capability (Stratman, 2008). Expertise (Doh, 2005) and managerial skills are needed to conduct offshore operations (Scheibe, Menneke, & Zobel, 2006).

Results of a case study highlight the importance of managers` capabilities to reduce boundaries and to stimulate collaboration between companies in offshore operations (Levina, 2007; Levina

& Vaast, 2008).

The potential for achieving positive results of offshore also depends on how companies carry out this process. Consequently, at more advanced stages of offshore operations, companies

must develop specific capabilities to manage offshore relationships and global networks (Askin

& Massini, 2008; Carmel & Agarwal, 2002; Lewin & Peeters, 2006b; Levina, 2007; Levy, 2005;

Venkatraman, 2004). Capabilities development (e.g. coordination of globally dispersed activities) has allowed companies to employ more complex offshore processes. It involves learning processes, identification, and adaptation to changing requirements in order to explore opportunities for offshore (Manning, Massini, & Lewin, 2008).

We utilize mainly a DC approach based on studies by Teece, Pisano, and Shuen (1997) and Teece and Pisano (2004) (see Figure 15). The three specific aspects of DC are elements, firm-specific processes, and outcomes. DC elements are common features; in other words, any company should present these aspects embedded in DC (e.g. Wang & Ahmed, 2007). The three DC elements help to determine a company’s DC and distinctive competence as follows: (1) organizational processes, which entail the organizational and managerial routines of current practice and learning; (2) positions, which refers to a company’s current endowment of technology and intellectual property and its relationships with customers, suppliers, and strategic alliances; and (3) paths, which refers to the strategic alternatives and opportunities available to the company.

We consider firm-specific processes of DC that entail reconfiguration, leveraging, and learning. These processes may vary among companies because they are developed over time (Wang & Ahmed, 2007). In other words, they are path dependent. Reconfiguration is the recombination of resources and capabilities to fit with changing requirements (Ambrosini &

Bowman, 2009; Bowman & Ambrosini, 2003; Eisenhardt & Martin, 2000; Menon, 2008).

Leveraging is the replication of a process or systems to another business unit (Ambrosini &

Bowman, 2009; Bowman & Ambrosini, 2003). Learning is the creation and regeneration of new

knowledge that allows a task to be performed (Ambrosini & Bowman, 2009; Bowman &

Ambrosini, 2003; Menon, 2008). We also consider that the outcome of DC is the development of capabilities for managing offshore operations. In other words, we refer to capability development as an outcome of a firm’s dynamic capabilities over time. DC can be considered a higher-order capability (e.g. Collis & Montgomery, 1994) or a dynamic ability (e.g. Zahra, Sapienza, &

Davidson, 2006) that develops, reconfigures, renews, and integrates a company’s capabilities.

Therefore, this work focuses on DC as a set of processes for developing organizational capabilities (e.g. the capability for managing offshore operations). In addition, offshore elements represent internal and external elements discussed previously as antecedents of DC.

In doing so, we do not discuss DC as a specific distinctive capability (e.g. R&D). For instance, Wilkens, Menzel, and Pawlowsky (2004) identified that knowledge management activities (e.g. knowledge creation) have a positive impact on DC, which was studied as a firm’s ability to deal with future challenges (e.g. funding/financial situation, new technologies, quality competition, cost competition, and innovation competition). Though that study showed interesting evidence, it only addressed possible outcomes of DC. How these results are achieved, which DC processes have contributed to those outcomes, and how knowledge management practices interact with DC processes remain unclear. Based on those previous studies, we propose the following definition: Companies develop capability to manage and implement offshore operations by DC elements and firm specific DC processes.

Figure 15: Analytical framework for developing capability to manage and implement offshore operations

Offshore Elements

·Strategic role of offshore operations

·Type of offshore operations

·Barriers to implement/manage offshore operations

·Coordination

Outcomes

·Capability development to implement and manage offshore operations DC Elements

·Organizational processes

·Positions

·path

Firm Specific DC Processes

·Reconfigurations

·Leveraging

·Learning Dynamic Capabilities