Small Firm Adaptive Capability, Competitive Strategy, and Performance Outcomes: Competing Mediation vs. Moderation Perspectives

• Author: Dimitrios Dousios,Nikolaos Tzokas,George Chryssochoidis
• DOI: http://doi.org/10.1002/jsc.2073
• Date: 01 July 2016
• Published date: 01 July 2016

RESEARCH ARTICLE

Strat. Change 25: 441–466 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2073

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2073

Small Firm Adaptive Capability, Competitive Strategy,

and Performance Outcomes: Competing Mediation vs.

Moderation Perspectives1

George Chryssochoidis

University of Kent, Kent Business School, UK

Dimitrios Dousios

University of East Anglia, Norwich Business School, UK

Nikolaos Tzokas

Plymouth University, Faculty of Business, University of Plymouth

In small rms, adaptive capability exercises a handling grip on competitive strategy

for superior performance (primarily acting as a mediator) and may offset, through

attenuation, the adverse impact of limited availability of resources.

Competitive strategy inuences performance (e.g., Hitt et al., 2003; McGee and

Rubach, 2011), but there is a gap in knowledge of how this inuence takes place

(Porter, 1991). Dynamic capabilities (Teece et al., 1997; Ambrosini et al., 2009)

oer a conceptual bridge, however, as they address the missing connection between

resource possession and resource exploitation (Zahra et al., 2006; Newbert, 2007).

We cannot assume, though, that all dynamic capabilities operate similarly in dif-

ferent sized rms, nor that they have a similar role in the competitive strategy–

performance relationship. Wang and Ahmed (2007, p. 37) suggest that it is

‘adaptive capability’ that matters for this purpose – yet its important role in the

small rm competitive strategy–performance relationship has neither received

adequate treatment nor been empirically studied. Our work provides a remedy

and we make two contributions. First, we explain and empirically assess the

importance and role of adaptive capability in the small rm competitive strategy–

performance relationship. Second, we clarify the causal pathway through which

adaptive capability exercises this role by juxtaposing two conceptually dierent

explanations, namely mediation versus moderation.

1 JEL classication code: M10. is research has been supported by the Greek State

Scholarship Foundation (IKY) through a grant to one of the authors.

Besides exercising a handling grip

on competitive strategy, adaptive

capability is more important than

competitive strategy per se for

superior performance.

Adaptive capability simultaneously

undertakes additional secondary

roles, reinforcing innovation

competitive strategy for

innovation-related outcomes.

Adaptive capability reects

managerial prociency for

competitive actions, which is why

it may offset, through

attenuation, the adverse impact

of small rm limited resources.

442 George Chryssochoidis, Dimitrios Dousios, and Nikolaos Tzokas

Copyright © 2016 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc

Our research question is therefore: How does small

rm adaptive capability alter the relationship between

small rm competitive strategy and performance out-

comes in terms of

(a) strength (i.e., when adaptive capability is considered,

does the relative importance of competitive strat-

egy, in its relationship with performance outcomes,

change?) and

(b) nature (i.e., when adaptive capability is considered,

what is the causal pathway through which competi-

tive strategy exercises its inuence?)

Our theoretical framework is explained, followed by the

results and conclusions of our empirical study.

Theoretical framework

Adaptive capability

A rm possesses adaptive capability when it prominently

‘adapts, responds and reacts’ (Grewal and Tansuhaj, 2001;

Krohmer et al., 2002). is happens because adaptive

capability focuses on ‘eective search and balancing explo-

ration and exploitation strategies’ (Staber and Sydow,

2002; Wang and Ahmed, 2007) through exible resource

adjustment, application, and renewal (Sanchez, 1995;

Wang and Ahmed, 2007: 37; Ambrosini et al., 2009:

S15). Adaptive capability is able to do so because it resides

at the highest level of the hierarchy of rm dynamic capa-

bilities, being empowered therefore to utilize multiple

other lower-level dynamic capabilities for its own function

and aims.

To view dynamic capabilities through a hierarchy lens

is important. Dynamic capabilities were introduced as an

eciency platform – an extension to the resource-based

view of the rm (Wernefelt, 1984) – and dened as the

assets by which rms ‘integrate, build and recongure

internal and external competencies to address rapidly

changing environments’ (Teece et al., 1997: 516) (see also

Barreto, 2010 for a review of other denitions; also see

Teece, 2007; 2010). e view that dynamic capabilities

operate as a hierarchy is rooted in Collis (1994), who

assigned rm resources and capabilities at four layers. e

rst layer represented the resource base of the rm itself;

the second layer represented the modication of existing

resources; the third layer represented the extension of

current capabilities; while the fourth layer regarded a

higher-order capacity, seen as a meta-routine. Subsequently,

Danneels (2002) dichotomized dynamic capabilities in

‘rst order’ (representing a rm’s capacity to achieve indi-

vidual tasks) and ‘second order’ (tapping into the rm’s

ability to renew through the creation of new ‘rst-order’

capabilities); Winter (2003) argued similarly that dynamic

capabilities operate to extend, modify, or create ordinary

capabilities. Zahra et al. (2006: 947) argue ‘an innite spiral

of capabilities to renew capabilities could be conceived’ (see

also Brady and Davis, 2004). Moreover, Ambrosini et al.

(2009) proposed a three-level view of dynamic capabilities.

e rst level represents incremental repeatable capabilities

(see also Helfat and Peteraf, 2003; Helfat et al., 2007),

which become embedded in the rm’s structures and sta-

bilize as rm patterns (Zollo and Winter, 2002). e

second level adjusts the resource mix by improving existing

and developing new resources (see also Makadok, 2001;

Maritan, 2001, Helfat et al., 2007). e third level recre-

ates, however, the physiognomy of the rm components

themselves and it allows the rm as a whole to change

toward new states and practices (Ambrosini et al., 2009:

19). Recreation occurs through grasping of market needs

by the establishment of a ‘dialogue’ throughout the rm to

‘translate’ this knowledge for action – an organizational

renewal process (see also Barr et al., 1992; Tripsas and

Gavetti, 2000). Such a recreation is also specic to each

rm, as dynamic capabilities are built within each rm’s

boundaries. e repercussion is that even if some base-layer

resources may be similar, top-layer capabilities are not and

these function in rm-unique and rm-distinct ways.

Adaptive capability is located at the top level and is a

higher-importance dynamic capability operating in each