attached journal entry. The summary should discuss the main
finding(s), the methods used, the implications of the work, and,
importantly, your own assessment of pros and cons of each article.
In the latter part, you need to demonstrate critical thinking.
- Strategic Management Journal Please Read And Summarize The Attached Journal Entry The Summary Should Discuss The Main 1 (387.59 KiB) Viewed 61 times
Ć Acrobat Pro DC File Edit Edit View E-Sign Window Help ●●● Home Tools Assignment-2.pdf H✩ ✪ L n C 9 TOO MUCH OF A GOOD THING? ABSORPTIVE CAPACITY, FIRM PERFORMANCE, AND THE MODERATING ROLE OF ENTREPRENEURIAL ORIENTATION TOO MUCH OF A... x cum → 3 / 13 64.1% Q 623 624 W. J Wales et al. Lyles, 2010). When costs are accounted for, it can be suggested that increased levels of ACAP may. after a point, be counterproductive to gains in firm financial performance. Research Notes and Commentaries (Barney, 1991), learning-based rationales suggest a strong, positive relationship between ACAP and firm performance (Volberda et al., 2010). How- ever, going beyond learning-based rationales, we believe that it is important to consider a new per spective on the ACAP-performance relationship. one t based on financial costs as opposed to knowl edge accumulation and that suggests the possibility of diminishing financial returns from increases in ACAP Our second rationale for curvilinearity in the relationship between ACAP and firm financial performance is that the assimilation and trans formation of new knowledge sources is co costly Assimilation costs increase as external odge sources are often context specific and, thus, more difficult and resource intensive to assimi late (Szulanski, 1996). As firms' search for dis tant knowledge intensifies, they are more likely to encounter knowledge sources with which they to encounter knowledge sources with which they do share a common or otherwise) with greater regularity. This lack of commonality contributes to distortion and loss of commonality contributes to distortion and loss of information when firms attempt to decode, inter pret, and ultimately assimilate the information that they acquire (Schramm, 1961).mation that Furthermore, the transformation of newly acquired knowledge is likely to not occur instan However, we propose that the costs associated with increases in ACAP may potentially be offset through consideration of the firm's strategic orientation. In particular, we suggest that an entrepreneurial orientation (EO) may enable firms to more effectively leverage increases within their ACAP. EO captures an organizational decision- making posture favoring entrepreneurial activities, strategic decisions, and managerial philosophiesa (Covin and Slevin, 1989 Simsek, Heavey, and Veiga, 2010). Furthermore, we argue moderates the proposed curvilinear relationship George, 2002: 186), EO refers to the strategy- making practices, management philosophies, and firm-level behaviors that are entrepreneurial in nature" (Anderson, Covin, and Slevin, 2009: 220) As such, EO cape and the arm-level strategic posure care suit of of new orga sitional prown opportunities for o and renewal (Covin and Wales, 2012). According to Miller (1983, 2011), firm level entrepreneurship can be viewed as the shared inno variance of the key behavioral dimensions veness, taking and p proactiveness. Inno vativeness reflects a firm's willingness to support tegness to suppo technological leadership, new products, and dra proactiveness refers to a firm's propensity to launch new products, services, d At least two rationales based on increasing costs at higher levels of ACAP support the notion of curvilinear (inverted-U shaped) relationship. In particular, linear rationales based on knowledge accumulation ignore the possibility that costs associated with the acquisition of new knowledge. after a certain point, may increase faster than the benefits as well as the potential for escalating costs associated with the assimilation and transformation of that knowledge and technologies before their competitors; and risk taking is associated with taking is associated with a firm's proclivity for bold, high risk projects that maximize the firm's ponential for subotaintial gaப்பட Core to the notion of an EO strategic posture is that firms are more likely to embrace the creation and pursuit of new entries Lumpkin and Dess between ACAP and financial performance by enabling firms to mitigate the decline in financial the decline in financial performance when returns begin to diminish Thus, the purpose of the present study is to critically examine the nature of the relationship between ACAP and firm financial performance In line with this research agenda, data from 285 Swedish small to medium-sized enterprises (SME) were collected to examine the possibility of diminishing financial returns associated with higher levels of ACAP as well as the potential moderating role that EO may have on this relationship. In this study, we present indirect evidence that costs associated with ACAP produce an invented U-shaped relationship with financial performance and examine how EO may enhance returns to investments in ACAP taneously or without effort. Prior knowledge is central to a firm's ability to value new knowledge Zahra and George, 2002) As firms acquire knowledge from farther afield sources, it is e state the less likely that the firm will possess the prior knowledge necessary to fully comprehend and appropriately value its discoveries, leading to missed opportunities. Building upon Cohen and Levinchal (1990), this phenomenon arises due to the limitations firms experience with achieving sufficient knowledge diversity to value all possi- ble discoveries. Thus, at high levels of ACAP, prior knowledge limitations further restrict the efficiency of knowledge assimilation efforts Thus, the first rationale for diminishing financial performance is that the acquisition of new knowl edge sources is increasingly costly (Leiponen and Helfat, 2010) Fundamentally, ACAP drives firms to absorb new extemal knowledge through long-term investments and collaborations Zahra and George, 2002). However, as a firm's ACAP increases, it must look progressively father afield to find novel knowledge. This may be referred to to as the well-is-drying-up' premise. Since prior investments serve to circumscribe the scope of this search (Cohen and Leviathal, 1990, Zahra and George, 2002), once available knowledge sources are exhausted, firms must invest additional resources to expand the scope of their search. Moreover, in terms of collaborations, Nooteboom and colleagues (2007: 1031) observed that while a firm's past investments in building technologi- cal knowledge enhance a firm's ability to under stand and appreciate novelty value in collabora tion, there are decreasing returns to knowledge in finding farther novelty: the more one knows the further away one has to look for novelty." This notion suggests that as ACAP increases, firms with has been theorized to contribute to firm innova sufficient cognitive distances to provide novelty. tion and, in tum, facilitate sustainable competitive Thus, resource investments and collaborations are advantage (Chen et al., 2009, Lenox and King. likely to become progressively less efficient as the 2004; Tai, 2001; Zhang et al. 2010). As each resource commitments necessary to acquire new piece of new knowledge attained by a firm may knowledge increase as the scope of search broad- contribute to innovation success and thereby repens and firms must go to increasingly extracedinary resent a possible source of competitive advantage lengths to locate novel knowledge. CW& LITERATURE REVIEW AND HYPOTHESES 1996 Miller, 2011). As such, EO may affect the curvilinear relationship between ACAP and firm financial performance through enhancing the commercialization of fem the commercialization of firm knowledge and the critical exploitation aspect of firms ACAP With greater EO, firms may identify trends and opportunities to leverage their knowledge-based resources in advance of their competitors and to take the risks necessary to pioneer new offerings in prospective markets. As ACAP increases diminishing returns to financial performance may be mitigated through more effective leveraging of the firm's knowledge-based resources toward opportunities for new entry, or more broadly the commercialization of new or established markets with new or existing products or services (Lumpkin and Dess, 1996: 136). As noted by Wikland and Shepherd (2003), the ability to generale e returns from a firm's knowledge-based assets o assets depends on the intensity with which firms grasp and enthusiastically pursue the exploitation of new product-market opportunities Taken together, the costs associated with the acquisition assimilation, and transformation of new knowledge would be expected to overtake the financial returns associated with the exploitation of that knowledge at high levels of ACAP. Therefore, we theorize that after a point, increases in ACAP will be counterproductive to gains in firm financial performance. ACAP and firm financial performance Previous empirical investigations have generally provided support for the notion that the higher a ' ACAP, the greater its financial performance (Chen, Lin, Chang, 2009, Rhee, 2008; Tai, 2001: the t ANI veny Zahra a leaming per and Hayton, 2008). From leader, ACAP must also work harder to locate parts Hypothesis 1: The relationship between ACAP and financial performance is curvilinear (inverted U-shaped) with the highest financial performance occurring at an intermediate level of ACAP. by a spective, enhancing knowledge transfer, spective by ACAP and EO Moreover, as a firm-level strategic posture, EO motivates and supports firm efforts to leverage absorbed knowledge into value-creating resource bundles (Griffith, Noble, and Chen, 2006: Wik- lund and Shephend, 2003) Resource bundling and rouleveraging are critical to enhancing performance and avoiding diminishing returns as rarely is the simple act of acquiring a resource sufficient to While ACAP captures a set of organizational tines and processes by which firms acquire, assim late, transform, and exploit knowledge (Zahra and MJ322-430 (2013) M. 34420-4000 DO This dom 544 304 15503200230143 UTC 47000 Sez This downloaded from 54 84 104 135 on F, 03 2022 20 14 38 UTC Fri Jun 3 4:16 PM O strategic manage...ood thing 20
Ć Acrobat Pro DC File Edit Edit View E-Sign Window Help ●●● Home Tools Assignment-2.pdf H✩ ✪ L n C TOO MUCH OF A GOOD THING? ABSORPTIVE CAPACITY, FIRM PERFORMANCE, AND THE MODERATING ROLE OF ENTREPRENEURIAL ORIENTATION TOO MUCH OF A... x mm → 5 / 13 64.1% Logo O Q 626 In 2007, Swedish W. J Wales et al. Moderating variable-DO EO was measured based on the Covin and Slevin (1989) scale, which examines innovativeness one three items), risk taking three items), and proac- tiveness (three items). The lowest item loading was 0.770 -8.405), and the scale showed acceptable reliability (or=0.88). Research Notes and Commentaries 625 appropriate all of its value (Ireland, Him, and Sir firms were sampled from mon, 2003), EO firms tend to be creative resource business database (Affärsdata). After constraining bundlers that embrace bootstrapping and seek the sample to firms with fewer than 250 employees the highest possible returns from their available (e, according to the European Union definition resources (Stevenson and Gumpert, 1985). With a of SMEs) and more than Swedish more prod strategic orientation, firms become more Krona (approximately 100,000 Euro) in sales to an active firms, we were left with a p more responsive to externally acquired knowledge and Stoica, 2003). Additionally. of 1500 firms for the survey. Questionnaires with higher levels of EO, firms improve perfor were mailed between March and May of 2007. were mance through intensifying their information uti- The questionnaire was addressed to the chief executive officer (CEO) of the SME with a letter lization efforts (Keh, Nguyen, and Ng. 2007) INER NE firms to higher levels of ACAP in translate explaining the purpose of the study. A total of 285 into complete usable questionnaires were received. A cial perfoCAP to greater fimm ca pe by i roYPOST modivating the pursuit of nonresponse analysis showed no significant new opportunities capitalize on knowledge differences to firm age, size, profit, based discoveries, and enhancing the ability sales, and capital. of firms to configure their knowledge-based resources into commercially valuable resource bundles. Therefore, as a moderator within the loading on their respective factors Colinear- ity tests indicate that all variance inflation fac tors were less than 2.738, which suggests that multicolinearity was also not a problem. More- over, confirmatory factor analysis shows ade quae fit (¹-547.822, df=269, comparative fix index-0953, Tucker-Lewis Index-0.945, root mean square enor of approximation 0.034) while the average variance extracted for EO (aver- age variance extracted 0.77) and ACAP (average variance extracted-0.73) were above 0.5 (Ander son and Gerbing, 1988) Control variables Firm age (years since founding) and sior (number of employees) were obtained from Affärsdata. We controlled for labor productivity growth and y growth and equity ownership over the three-year period using secondary data matched through Affärsdata. The Pearson correlations and descriptive statis tics are 1 tics are listed in Table 1. To test our hypothe sized relationships we use moderated hierarchical regression across three models for each perfor Laber prodativer growth may contribuie tomance variable: a direct effects, and Dependent variables proposed nonlinear relationship between ACAP Gilbert, McDougall, and Audretsch, 2006), growth As widely acknowledged in the literature (e.g. firm performance due to high performance work practices or elements pertaining to organizational culture. Equity stake is an indicator of effort that an individual may expend in the firm. The task environment was controlled for as dynamic and hostile environments have been shown to influ- ence the strength of ACAP and EO effectiveness moderation model. Based on Aiken, West, and Reno (1991), we mean-centered the independent and moderating variables. To assess model signif cance, we tested differences in F-stat and adjusted R values. As shown in Table 2, each model sig- nificantly added to the explanatory power. and firm-financial performance we posit is a key indicator of successful small firms and We wed self-reported hostility (0.76) anaySULTS dynamism (-0.78) scales proposed by Miller 1 Friesen (1982) y Miller RESULTS Hypothesis 2: Extrepreneurial orientation will moderate the inverted U-shaped relationship between ACAP and financial performance such that at low levels of ACAP, higher levels of EO will reinforce the positive relationship between ACAP and financial performance, and at high levels of ACAP, higher levels of EO will mitigate the declining relationship between ACAP and financial performance. a central ambition of technology-based firms. As measuring growth from multiple perspectives helps ensure the robustness of the proposed relationships, we used prospective compounded three-year growth rates for the years 2008, 2009, and 2010 from Affärsdata to measure sales growth, operating profit growth, and return on assets (ROA) growth. Sales are measured annually in Swedish Krona. Operating profit is sales minus the cost of goods sold, and ROA is the ratio of net profit, or EBIT, to year-end asset value in Swedish Krona. Finally, we industry-adjusted all fem growth rates by subtracting their median scale values. Additionally, broader geographical focus may lead to economies of scope for increasing sales and leveraging existing resources to enhance profit and asset performance. We created an index from self-report measures for each of the geographical markets in which a firm operates: local, regional, national, and international. If a firm operated in a certain geographical market, we assigned a score of "1" and otherwise. Finally, diversity in a firm's exchange activities may create economies of scope for internal resources. We created a market sector index assigning "1" for each area in which a firm operated: manufacturing, services, METHODS Recall that Hypothesis 1 predicted an inverted-U shaped relationship between ACAP and perfor- mance. The resalts support an inverted-U rela tionship (sales growth: -029; p<0.05; oper- ating profit growth: 5-008; p<0.05: ROA growth:-038; p<0.05). These findings pro vide meaningful indirect evidence of the costs associated with increasing ACAP Further, in Table 3 we draw on Blanchflower www co (2007) and Lind and Mehlum (2010) to assess the validity of an inverted-U relationship between ACAP and performance. Fint, we test the joint significance of the direct and squared terms of ACAP, followed by Sasabuchi's (1980) test for an inverted U-shaped relationship (He: the relationship is U-shaped). The inverted U-shaped relationship is observed to be significant for the 10 direct effects of ACAP on the three performance Two data sources were used for the present study: a postal survey and archival data sources to com- pile performance data. Data collected through the postal survey were gathered from Swedish technology-based SMEs in the Swedish Stan Independent variable-ACAP In this study, ACAP was based on the scale developed by Jansen, Van den Bosch, and Vol and trading benda (2005), which measures the acquisition (six items), assimilation (three items), transformation (six items), and exploitation (six items) of new knowledge. The questions were originally based on a business-unit level and were modified to fi the context of SMEs. The lowest item loading was 0.802 (6.974), and the scale showed acceptable dard Industrial Classification code 72 220- outer consuluncy-related computer system or computer software firms. Focusing on a single industry potential confounding effects due to het O factors on ACAP. More erogeneous industry factors on ACAP. More over, as technology-based SMEs seek to develop and utilize new knowledge, the accumulation of knowledge-based resources is particularly imporreliability (-0.83). tant to these firms. Finally, the Swedish gover- Analysis Common method bias was not observed as Har man's one-factor analysis led to seven factors explaining 88.30 percent of the variance and effect of ACAP and calculated confidence intervals outcomes. Then, we estimated the extreme point of based on Fieller's standard error and the Delta the fint factor explained 17.35 percent of the variance. Additionally, in a separate test, inclu sion of a method factor did not show signifi cantly improved fit over a model with all items ment requires all firms to report financial perforSupplementary tables and res for loadingsarbe mance certified by a chartered accountant Supplementary tables and for the c tests are available upon request SM3422-40003 34 32-33 (2003) DO This dad 5484 104 15503 2002 2014 18 UTC Tided from 5484 104 155 01 2012 2014 UTC 430000 de Fri Jun 3 4:16 PM O strategic manage...ood thing C 10
Ć ●●● Home Tools H✩ ✪ L n @ Acrobat Pro DC File Edit Edit View E-Sign Window Help TOO MUCH OF A GOOD THING? ABSORPTIVE CAPACITY, FIRM PERFORMANCE, AND THE MODERATING ROLE OF ENTREPRENEURIAL ORIENTATION TOO MUCH OF A... x Com ↑ 7/13 64.1% Research Notes and Commentaries 628 W. J Wales et al. 11 11 Assignment-2.pdf 7 8 9 10 11 12 This dd 5484 104 155F03 2002 30 14 38 UTC 34422-4 47000 Sez 11 11 11 capacity Wy&L This downloaded from 54 84 104 135 on F, 03 2022 20 14 38 UTC 34622-433 (2003) Fri Jun 3 4:16 PM O strategic manage...ood thing %
Ć ●●● Home Tools H✩ ✪ a L n @ Acrobat Pro DC File Edit Edit View E-Sign Window Help TOO MUCH OF A GOOD THING? ABSORPTIVE CAPACITY, FIRM PERFORMANCE, AND THE MODERATING ROLE OF ENTREPRENEURIAL ORIENTATION TOO MUCH OF A... x mm 9 / 13 64.1% 630 W. J Wales et al. Research Notes and Commentaries method (Lind and Mehlum, 2010), which indicate that the ACAP values were within the limits of the data. We observe the inflection points to occur below the ACAP scale midociat (sales growth: 2.175: profit growth: 1.975 ROA growth 1986) 2 effect of EO on the inverted-U shaped relationship between ACAP and firm and firm financial performance We observed support for the moderating role of A primary theoretical implication is that the relationship between ACAP and firm financial per- formance can and should be viewed as subject to diminishing financial returns. The significance of this finding of this finding is underscored by the observation is underscored by that the with the devel opment of this important strategic construct have been a almost universally ignored within the ACAP literature (Volbenda er al., 2010). Our findings support hitherto untested notions that costs are EO (sales growth: 021; p<0.05; operating profit growth: tot 8019, 2005: ROA growth 8022; p<0.05). Following Lind and Mehlum (2010), we further conduct inverse-U shape tests for high and low values of EO. Our findings from these tests suggest that the inflection points within the ACAP-fin-financial performance relationship for firms with higher EO occur at higher levels and indicate that with higher levels of EO bieber frm Snancial performance gains from ACAP may be realized before diminishing returns indeed associated with ACAP and shed light on this critical research p this critical gap by indirect evidence that the relationship the gap by providing rational and is curvilinear (inverted-U), with financial Ginverted-U), with financial performance being the highest at intermediate, a highest at to maximum, levels of ACAP. Intriguingly, our results suggest that the optimum values of ACAP for facilitating firm financial performance are more than one stan dard deviation below the mean of ACAP withi our sample. This indicates that, on average, a lower occur (indicated by shifting inflection toward th Scanned Page Image p. 630 ve been anticipated appears to produce the strongest returns to financial performance. right with higher levels of BO-sales growth 3.805: profit growthe 3.937; ROA growth: 4.072) 172) Additionally, with lower EO, the inflection points indicate that diminishing retures to ACAP are reached more quickly (sales growth: 1.072: profit growth: 1.078, ROA growth: 1017) Thus, overall, found support for both hyp Finally, drawing upon the recommendations of Cohen (2003) regarding the ploning of nonlinear moderation effects, we graphically depict the moderated relationships in Figure 1. Drawing on bootstrapping from Efron and Tibshian (1993) model power for operating sales growth, net profit growth and ROA was 0.94, 0.94, and 0.92, respectively. A second theoretical implication is that the man ifestation of EO represents an important means through which firms can increase the financial benefits of their ACAP. To date, only a handful of studies have explored EO as a moderating influence on firm outcomes. By examining EO as a moderator, the present research goes beyond recent conversations concerning the relationship between EO and firm performance (Rasch et al., 2009) to build a discussion around the question of what EO provides organizations that enhances their performance. It is not productive to view EO as an inherently beneficial or disruptive organizational posture (Wikland and Shephend, 2003) rather, a more meaningful contingency perspective on this matter concerns what EO entails-sach as foster ing the undertaking of new product-market entries DISCUSSION AND CONCLUSIONS The present research extends our understanding of the effects of ACAP on firm financial perfor mance by suggesting that their relationship: (a) in low may monotonic, (b) is maximized at relatively implications of ACAP for fem financial ve (Lumpkin and Dess, 1996: Miller, 2011)--that y influence and moderate fem performance Another finding of our study is that the negative perfor mance appear to be contingent upon the absence of of the research would seem to suggest that EO represents a potential enabler of the relationship between ACAP and firm financial performance as posited herein. However, the absence of a potential enabler (e. low levels of the orientation) would be expected to have no levels of ACAP, and (c) is harmfal past moderate levels of ACAP. Additionally, EO is observed to futentio meaningfully influence this with high effect to be EO, financial returns from ACAP begin to decline at much higher levels and remain positive. Con versely, with low BO, increases in ACAP manifest more abrupt harmful implications for firm financial performance to be rather profound. Prior of this DOE H Assignment-2.pdf ↑ CW& rect effect of ACAP This dd 5484 104 155F03 2002 30 14 38 UTC 629 30-40 47000 Sez This downloaded from 54 84 104 135 on Fr, 03 2022 20 14 38 UTC Fri Jun 3 4:16 PM O strategic manage...ood thing ● ya yo