THE IMPACT OF ABSORPTIVE CAPACITY, ORGANIZATIONAL INERTIA ON ALLIANCE AMBIDEXTERITY AND INNOVATION FOR SUSTAINED PERFORMANCE.

Author:Aryasa, Komang Budi
Position:Report
 
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INTRODUCTION

Strategic alliances have been known as an important strategy to build competitive advantage and keep the company's position in the market (Golonka, 2013; Hamel et al., 1989). An alliance is seen as an initiative to acquire external resources while keep leveraging internal capabilities (Gulati, Lavie & Singh, 2008). This is important in the industries which have a high growth, dynamically changing and technology-intensive. The key to success in those industries is the speed of entry into market in the form of providing services with a lower level of complexity and faster than competitors.

The ICT industry is one of the industries experiencing disruption. This industry is characterized by rapid technological developments and increasingly complex customer needs, no company provides the same exact services and always needs complex resources to meet those needs (Golonka, 2013). The industry also requires intensive technology and knowledge, dynamic technological change and industry growth. Activities such as the creation of new knowledge are more important than improving existing knowledge, building long-term relationships and trusting among corporations is also important. Therefore, inter-company alliances are the primary concern in this industry. This phenomenon is also experienced by telecommunication operators such as Telkom Group. In developing ICT portfolio, Telkom Group like other telecommunication companies, also collaborate with different organizations. This collaboration is necessary to acquire new knowledge as well as develop the knowledge and capabilities already possessed. Therefore, Telkom Group requires an alliance ambidexterity to explore new knowledge from partners and simultaneously requires leveraging current knowledge. This capability is also important to drive innovation for sustained performance. (March, 1991; Tushman & O'Reilly, 1996; Rivkin & Siggelkow, 2007) explained that the company's competitive advantage can be achieved by the balance between explorative alliance and exploitative alliance.

As a state owned enterprise (SOE), Telkom Group has internal organizational factors that influence new competency exploration initiatives. Absorptive capacity is needed to explore new capabilities from partners. However, past success history as a monopolist will lead to the emergence of organizational inertia (Liao et al., 2008; Carillo & Gromb, 1998). The highly structured organizational of the corporate, divisional, subsidiary levels and the vast range of product portfolios indicate that the company is a large corporation. Inertia will increment with increasing size and age of the organization (Hannan & Freeman, 1984; Kelly & Amburgey, 1991; Liao et al., 2008).

In this study, we will investigate the influence of absorptive capacity and organizational inertia on achieving alliance ambidexterity. Few studies concerning on internal factors of organizational learning affecting the success of alliance. Previous studies are dominated by the investigations of external factors such as environmental dynamism and competitiveness (Jansen et al., 2005). Unlike absorptive capacity that produces alternatives and innovations as a result of organizational external exploration, inertia leads to the use of the old ways of achieving organizational goals (Liao, Fei & Liu, 2008). These two internal factors will be able to affect alliance ambidexterities which subsequently result in innovation and organizational performance (He & Wong, 2004).

It would be interesting to investigate the impact of alliance ambidexterity on innovation (Leung et al., 2013). Most studies focusing on analysing the consequences of alliance ambidexterity to performance. From previous researches, there are different results of ambidexterity to performance. Firstly, they express the supporting relation of ambidexterity and sales growth rate (Gibson & Birkinshaw, 2004; He & Wong, 2004; Lubatkin et al., 2006). Second, the relation of competence exploration and competence exploitation on performance implies that exploration will be more important to the firm when it is coordinated with a lower level of exploitation and vice versa (Atuaheme-Gima, 2005; Atuaheme-Gima & Murray, 2007). Too much both exploration and exploitation may have undesirable expenses for the firm.

The alliances that are common models to acquire knowledge from external organizations will lead to innovation (He & Wong, 2004). How innovation as mediation between alliance ambidexterity and performance is still rare. (Leung et al., 2013; He & Wong, 2004) conclude that there are different influences of ambidexterity on product innovation and process innovation, thus they also produce different outcomes.

Thus, we are interested to answer of the following research question: Do absorptive capacity, organizational inertia; alliance ambidexterity can influence innovation and performance?

To answer above research question, a model is developed (Figure 1) to describe absorptive capacity and organizational inertia in incumbent previously monopoly company which in this case is Telkom Group. The model also depicts alliance ambidexterity activities in the form of explorative and exploitative (Lavie & Rosenkopt, 2006). Those alliances contribute to bundle of both new and complementary resources for the business units within Telkom Group which responsible for the innovation. Finally, the developed model explores product innovation and process innovation as consequences of ambidexterity alliance.

RESEARCH MODEL

Our literature review shows that there are two internal factors which influence alliance ambidexterity, namely absorptive capacity and organizational inertia. Absorptive capacity shows the company's ability to make acquisitions, assimilation, integration and transformation of knowledge gained from external organizations (Zahra & George, 2002; Cohen & Levinthal, 1990; Lavie & Rosenkopf, 2006). Organizational inertia is the organization inability to change rapidly and effectively. A big organization normally has resistance to change (Kinear & Roodt, 1998). These two internal factors that affect alliance ambidexterity influence the achievement of superior organizational performance. Ambidexterous organizations is an organization that constantly innovating (Yamakawa, Yang & Lin, 2011). Innovation can be product innovation or process innovation. Product innovation is also intended to produce new products whereas process innovation is intended to be development a new process. Alliance ambidexterity, product innovation and process innovation have also a direct influence on the performance of the organization (Lavie & Rosenkopf, 2006; March, 1991; Levinthal & March, 1993; Tushman & O'Reilly, 1996). Organizational performance is the main goal and part of organizational effectiveness. According to Venkatraman & Ramanujam (1986), organization's performance reflects the financial performance. Financial performance includes sales growth and profitability. Furthermore, the broader domain of financial performance is the business performance includes operational performance such as market share and product quality.

LITERATURE REVIEW AND HYPOTHESES

The long-term sustainability of an organization depends greatly on ability to exploit their own capabilities and simultaneously explore new competencies (Levinthal & March, 1993; March, 1991). A company utilizes an alliance ambidexterity to find a proper means to explore its external possibilities and continue innovating internally. To achieve ambidextrous in alliance, the organization engages in both explorative alliance and exploitative alliance. The first is to acquire new knowledge, partnering with new partners from different industry and organizational culture. Thus, explorative alliance involves finding new routines in the organization and the discovery of new approaches in technology, new products and new processes (McGrath, 2001; Lavie & Rosenkopf, 2006). Conversely, through exploitative alliance, organizations partner with companies who have previous cooperation to leverage their existing knowledge, learn how to improve their ability and focus on existing domains. This alliance is created based on the similar industry and cultural background (Levie & Rosenkopf, 2006).

Lavie & Rosenkoft (2006) convey three dimensions of ambidextrous in strategic alliances: function-based, structure-based and attribute-based. The function- based dimension is focused on objective of the alliance whether it is created to generate new knowledge or leverage existing knowledge. The structure-based dimension is focused on whether the alliance partners with a new partner or a partner who has a history of previous cooperation. Finally, the attributebased dimension refers to the alliance that is formed either with companies with similar organizational attribute or clearly different characteristics.

To maintain alliance ambidexterity, the company should not only consider external factors such as environmental dynamism and competition (Tushman & O'Reilly, 1996; Jansen et al., 2005), but also focus on internal factors. Furthermore, internal factors that much influence are absorptive capacity and organizational inertia. The absorptive capacity will support the company in exploring the external element; otherwise, organizational inertia is another internal factor that encourages a company to exploit internal resources (Cohen & Levinthal, 1990). Absorptive capacity is the ability to recognize the value of new information, to assimilate and to finally commercialize this information (Cohen & Levinthal, 1990). Four dimensions of absorptive capacity are acquisition, assimilation, transformation and implementation (Zahra & George, 2002; Daspit & D'Souza, 2013). Acquisition is the company's ability to perform the identification and acquisition of useful knowledge. Assimilation is to analyze and understand the knowledge gained externally (Jansen, Van Den Bosch &amp...

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