The Power of Absorptive Capacity

Transcription

1 The Power of Absorptive Capacity A study on how Absorptive Capacity can support Aviko B.V. in creating and acting on strategic foresights of the external business environment Wouter Bergevoet July, 2016

2 knowledge is power (Bacon, 1857) The power of Absorptive Capacity II

3 Author: Wouter Bergevoet Student number: Master Program: Management, Economics, and Consumer Studies Specialisation: Management Studies Course number: MST Number of ECTS: 33 ECTS First supervisor WUR: dr. E.F.M. Wubben Second supervisor WUR: Prof dr. S.W.F. Omta Company supervisor: Mr. R. van Leusen The power of Absorptive Capacity III

4 Firms with a high Absorptive Capacity (henceforth, AC ) are able to create high quality strategic foresights of the external business environment (hereafter. EBE ). These foresights will improve the quality of strategic decisions and enable firms to create sustainable competitive advantage. Multiple theories related to the AC concept have been elaborated. However, only a few scholars attempted to analyse and operationalise the specific processes and routines of the AC concept. Therefore, it is for firms difficult to embed the AC processes and routines inside their commercial operations. This knowledge gap is noticeable in practice and academia. Therefore, the first purpose of this research is to operationalise the concept by supporting Aviko B.V. in creating and acting on strategic foresights of the EBE by developing a corporate AC framework. Furthermore, hardly any research has been done on the influence of expanding activities in existing or new domestic and/or international markets (hereafter, external venturing ) on the AC within firms. Hence, the second purpose of this research is to analyse the influence of external venturing on AC. Concerning the first purpose, the author build on Zahra & George (2002) and related literature, who view AC as a dynamic capability and distinguished four complementary dimensions. These dimensions are subdivided into the Potential (acquisition and Assimilation) and realised (transformation and exploitation) AC. When firms are able to successfully embed the AC processes and routines inside the commercial operations of the firm a high Potential and Realised AC can be realised. Next, in the empirical part of the study, expert interviews (N=11) and an exploratory single case strategy (N=11) are used to create a corporate AC framework. This corporate AC framework consists of four processes and six routines, that Aviko B.V. can use both to standardise certain AC processes and routines and to create and act on strategic foresights of their EBE. The derived insights regarding the AC processes and routines can be used and validated by academics. Firms can use the framework and the insights to maintain and/or increase their AC and improve the strategic decision making process to advance their competitive advantages. In relation to the second purpose, the empirical results show that firms with a high AC can better increase and learn from technological, market, and internationalisation knowledge. Furthermore, because external venturing activities can provide firms with new knowledge a stock of related knowledge is needed. Therefore, external venturing effects the AC of firms and vice versa. Keywords: Absorptive Capacity, external venturing, external business environment The power of Absorptive Capacity IV

5 Preface This report is written for my Master of Science (MSc) in Management Studies at the University of Wageningen. The research is conducted for Aviko B.V., a potato processing firm, located in Steenderen, The Netherlands in the period of January 2016 July Throughout my six months at Aviko B.V. I have received the fullest support and freedom to explore my interests in strategic management and food processing firms. I hope that this report shows how much pleasure I had working on this research for Aviko B.V. I would like to take this opportunity to thank my supervisors. On behalf of Aviko B.V. a special word of gratitude goes to Roel van Leusen for his patience, constructive feedback, and giving me the possibility to conduct this research for Aviko B.V. Furthermore, I would like to thank all the other internal and external interviewees for their time and support. On behalf of the University Wageningen, I would like to show my gratitude to my first supervisor dr. E.F.M. Wubben for his valuable and professional support and original contributions that led to insights and a higher research quality. Furthermore, I would like to thank my second supervisor prof. dr. S.W.F. Omta with his help during the empirical research. Finally, I would like to thank Renate, Joop, Monique B., Monique V., and Iris for their unconditional support. Without this help it would be much harder and less fun. For the readers, I hope you will find this report informative and enjoyable and that it contributes to the further professionalization of Aviko B.V. Wouter Bergevoet Steenderen, June 2016 The power of Absorptive Capacity V

6 Table of Content List of Figures... VIII List of Tables... VIII 1. Introduction Conceptual Research Design... 1 Project Context... 1 Problem Analysis and Research Objective... 2 Research Framework... 3 Research Questions... 4 Definition Concepts Technical Research Design... 5 Research Strategies... 5 Research Materials Report Structure Literature Review Absorptive Capacity... 7 Definition, Dimensions, and Antecedents & Outcomes... 7 Contingent factors Processes and Routines Conclusion Absorptive Capacity and External Business Environment Definition Knowledge Areas and Sources Conclusion Absorptive Capacity and External Venturing External Venturing, Knowledge and Learning External Venturing and Absorptive Capacity Conclusion Theoretical Absorptive Capacity Framework Research Methodology Research Strategy Theoretical AC Framework Expert Interviews Data Collection Expert Interviews Data Analysis Expert Interviews: Single Case Study Design Case Selection and Description Unit of Analysis and Data Collection Single Case Study Data Analysis Single Case Study Limitations Expert Interviews Data: Expert interviews Validation Experts Absorptive Capacity Experts External Venturing Experts Analysis Absorptive Capacity and External Business Environment External Venturing Single Case Study The power of Absorptive Capacity VI

7 6. Conclusion, Discussion & Limitations, and Implications Conclusion Conclusion Sub-Research Questions Conclusion General Research Question Discussion and limitations Discussion Limitations Implications Theoretical Implications Business Implications Reference List Appendices Appendix A: Expert Selection Appendix B: Protocol Expert Interviews Appendix C: Single Case Study Criteria Appendix D: Operationalisation for Single Case Study Appendix E: Protocol First Round Single Case Interviews Appendix F: Protocol Second Round Single Case Interviews Appendix G: Transcripts Expert Interviews Appendix H: Results Expert Interviews Appendix I: Transcripts Case Interviews Appendix J: Results Singe Case Study The power of Absorptive Capacity VII

8 List of Figures Figure 1.1: Research Framework... 3 Figure 2.1: Preliminary Theoretical Absorptive Capacity Framework Figure 2.2: Preliminary Theoretical Absorptive Capacity Framework Figure 2.3: Preliminary Theoretical Absorptive Capacity Framework Figure 2.4: Preliminary Theoretical Absorptive Capacity Framework Figure 2.5: Final Theoretical Absorptive Capacity Framework Figure 3.1: Research Strategy Figure 4.1: Validated Theoretical Absorptive Capacity Framework Figure 5.1: Competitor Knowledge area Figure 5.2: Market Knowledge area Figure 5.3: Customer Knowledge area Figure 5.4: Product Knowledge area List of Tables Table 1.1: Definition of concepts... 4 Table 1.2: Research materials... 6 Table 2.1: The Four Complementary Dimensions of Absorptive Capacity... 8 Table 2.2: Organisational and knowledge antecedents of Absorptive Capacity... 9 Table 2.3: Level of Velocity and External Business Environment Knowledge Usage Table 2.4: Velocity Dimensions Table 2.5: Knowledge Areas Table 3.1: Selected Absorptive Capacity, External venturing, and validation experts Table 3.2: Operationalisation Research Proposition 1A, 1B, 2A, and 2B Table 3.3: Operationalisation Research Proposition Table 3.4: Construct Tables Design Table 3.5: Single Case Interviews Aviko B.V Table 3.6: Analysis first round case interviews (example) Table 3.7: analysis second round case interviews (example) Table 4.1: Processes and Routines Acquisition Dimension Table 4.2: Processes and Routines Assimilation Dimension Table 4.3: Processes and Routines Transformation Dimension Table 4.4: Processes and Routines Exploitation Dimension The power of Absorptive Capacity VIII

9 1. Introduction This chapter is based on Verschuren & Doorewaard (2010) and consists of the sections conceptual research design (section 1.1) and technical research design (section 1.2). Finally, in section 1.3, the report structure is written. 1.1 Conceptual Research Design The conceptual research design starts with the project context (section 1.1.1). Section presents the problem analysis and defines the research objective, followed by the visualisation of the research framework in section Next, the research questions are, based on the research framework, formulated in section The section closes with the definitions of the key concepts (section ). Project Context Firms are operating in an external business environment (hereafter, EBE ) under imperfect information. Within this turbulent business environment, where competition becomes fiercer, competitive firms have developed and deploy the competency of creating and acting on foresights about opportunities and threats (Battistella, 2014). Firms try to use these foresights about for example, competitors, markets, and customers, to create sustainable competitive advantage so that they can cope with the turbulent environment (Hines & Gold, 2014). Firms are aware of the fact that in order to create this advantage, they need to monitor the EBE closely. Monitoring the EBE involves intensively scanning heterogeneous information sources (Waltinger, Tecuci, Picioroaga, Grigoras, & Sullivan, 2013). Firms who are successful in generating valuable information are creating sustainable competitive. For these reasons the familiar quote knowledge is power is appropriate. However, it is increasingly being recognised that, even though the quality of it is high, only monitoring the EBE is not creating sustainable competitive advantage. It is becoming clear that information is only valuable if firms are able to disperse this information to the right people at the right time so informed strategic decisions about the future can be made (Proff & Fojcik, 2015) (Azar, 2014) (Marchand & Hykes, 2007). In the last two decades, a lot of research investigated how strategic intangible resources, for example, human capital are the bases for competitive advantage (Mithas, Ramasubbu, & Sambamurthy, 2011) (Crook, Todd, Combs, Woehr, & Ketchen Jr, 2011) (Hatch & Dyer, 2004). According to the resource-based view (henceforth, RBV ), firms possess heterogeneous and sticky resource bundles (Teece, Pisano, & Shuen, 1997). Firms create sustainable competitive advantage from these resources when they are valuable, rare, imperfectly imitable and not substitutable (Barney, 1991) (Barney, Wright, & Ketchen, 2001). However, it has been argued that the RBV strategy, especially in turbulent environments, does not support a sustainable competitive advantage (Teece, Pisano, & Shuen, 1997). Therefore, based on the theory of RBV, Absorptive Capacity (henceforth, AC ) was developed as a dynamic capability. AC is defined by Zahra & George (2002) as a set of organisational processes and routines by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organisational capability. One can consider that there is a difference between information and knowledge. The author is of the opinion that firms acquire information and by assimilating this information it becomes knowledge. However, Zahra and George (2002) do not make this distinction and use the term knowledge throughout the four dimensions. We confer to their practice by using the word knowledge, not information. However, we use the term knowledge areas to describe, for example, competitor information and information sources, to describe internal and external information sources. Because of the globalisation firms have been encouraged, for different reasons, to undertake external venturing activities (Zahra & Hayton, 2008). The important role that knowledge has in these firms has been widely recognized (Jansen, Bosch, & Volberda, 2005) (Petersen, Pedersen, & Sharma, 2003) (Johanson & Vahlne, 2009). As knowledge becomes more important for expanding firms one can consider that this influences the AC of firms. Therefore, more research is needed on the influence of external venturing activities on AC and the various types of knowledge firms might gain from external venturing activities (Zahra & Hayton, 2008). The power of Absorptive Capacity 1

10 Problem Analysis and Research Objective Strategic decisions are non-routine and are liable to involve uncertainty (Elbanna & Child, 2007). Because strategic decision are non-routine, knowledge of the EBE is typically identified and acquired on an ad-hoc and non-routine basis (Zahra & George, 2002) (Kowalczyk & Buxmann, 2015). Furthermore, this knowledge is not aggregated, not dispersed, only shared on a need-to-know basis and a lot of attention is oriented on protecting and securing knowledge (Randeree, 2006). As a result, knowledge about the EBE is ignored when there are no strategic decisions to be taken, strategic foresights are missed and employees are lacking knowledge outside their personal scope. Among these and other reasons, the AC of firms is not optimal and firms are not able to create sustainable competitive advantage. Therefore, the first purpose of this research is to operationalise the AC concept by supporting Aviko B.V. in creating and acting on strategic foresights of the EBE, understanding the underlying dimension, antecedents and outcomes, knowledge areas, and information sources. A lot of research has been done on the different dimensions of AC (Camisón & Fores, 2010); on AC as a source of sustainable competitive advantage (Escribano, Fosfuri, & Tribó, 2009), how AC contributes to innovation, learning capabilities (Cohen & Levinthal, 1990) (Escribano, Fosfuri, & Tribó, 2009), financial performance (Volberda, Foss, & Lyles, 2010) and the role of knowledge technologies on AC (Roberts, Galluch, & Grover, 2012). However, the organisational design and individual level antecedents have not yet been studied (Volberda, Foss, & Lyles, 2010). Furthermore, a lot of research is done on how AC differs from new and established firms (Zahra, Sapienza, & Davidsson, 2006) (Larrañeta, Zahra, & González, 2012) and AC as a moderating influence on the effect of international venturing on organisational performance (Zahra & Hayton, 2008). However, hardly any research has been done on the influence of expanding activities in existing or new domestic and international markets (hereafter, external venturing ) on the AC within firms. Hence, the second purpose of this research is to analyse the influence of external venturing on AC. This research will be conducted for Aviko B.V., a potato processing firm, that is producing and selling potato products internationally. Aviko B.V. is primarily active on the foodservice market and has the second biggest market share in Europe (circa 22 percent) and fourth worldwide (circa 8 percent) (Aviko B.V., 2016). Aviko B.V. has twelve factories in Europe and two outside Europe. The Benelux, Germany & International Sales headquarters is located in Steenderen, The Netherlands. Here, the strategic decisions on, for example, external venturing, investments and operations are made. Currently, Aviko B.V. invested in a factory in the north-east of China. The reason for this investment is to capitalise on the opportunities for further growth offered by the Chinese market (Aviko B.V., 2014). One can consider that the required knowledge about the EBE will increase and the AC will be crucial so that they can create and act on strategic foresights. Aviko B.V. uses knowledge to support strategic decision making. However, the acquisition of knowledge is fragmented and not standardised. As a result, different internal actors acquire the same knowledge from different information sources for different purposes. Therefore, Aviko B.V. wants to embed the AC processes and routines more inside their commercial operations and organisation. Based on the problem analyses the following research objective is formulated: The objective of this research is to support Aviko B.V. in creating and acting on strategic foresights of the external business environment by developing a corporate Absorptive Capacity framework. The power of Absorptive Capacity 2

11 Research Framework To ensure that the research objective will be achieved a research framework is visualised. The object and objective needs to be clear before statements, based on the research, can be made. The object of study is Absorptive Capacity. This object will be studied theoretically and empirically in order to achieve the objective of creating and acting on strategic foresights of the external business environment. The research framework, consisting of four parts (I to IV) and is visualised in Figure 1.1. The different parts are elaborated on below the framework. SRQ 2: Literature on supporting AC by the EBE SRQ 4: Define theoretical AC framework SRQ 1: Literature on AC SRQ 5+6: AC and external venturing of firms active on the foodservice Market Conclusion and recommendations SRQ 3: Literature on the influence of external venturing on AC SRQ 7: AC and external venturing of Aviko B.V. (I) (II) (III) (IV) Theoretical Empirical Analytical Figure 1.1: Research Framework The literature study (I) reviews the prevalent literature insights on organising AC, understanding its dimensions, antecedents and outcomes. Next, an understanding will be achieved on the knowledge areas and information sources of the EBE and how AC can be supported by pro-actively and on a routine basis scanning the EBE. Finally, the influence of external venturing on AC will be analysed. In addition, during the literature study evidence will be provided, by analysing best current practices, how AC and scanning the EBE works in practice. The knowledge obtained will be used to draw conclusions and define a theoretical AC framework (II). This framework includes the AC dimensions, antecedents, and outcomes, the knowledge areas and information sources of the EBE and the influence of external venturing on AC. During the third part of this research (III), the defined theoretical AC framework will be analysed empirically. First, different expert interviews are held whose area of expertise are AC and/or external venturing of the foodservice market. Appendix A provides the full expert selection including criteria. The goal of this part is to gain a deeper understanding of the theoretical AC framework, so that this can be made suitable for the studied case(s) (Vaus, 2001). Here, the processes and routines are determined that firms, active on the foodservice market, use to deploy their AC in commercial operations by scanning the EBE on a proactive and routine basis. Furthermore, the effect of external venturing on the AC of firms active on the foodservice market is determined. Subsequently, a single case strategy, with Aviko B.V. as research object (Vaus, 2001), will be used to analyse the critical knowledge of the EBE for Aviko B.V. in order to deploy their AC in their commercial operations. Finally, conclusions and recommendations (IV) are formulated based on the theoretical and empirical research and the corporate AC framework is visualised. The power of Absorptive Capacity 3

12 Research Questions By subdividing the research framework one general research question and seven sub-research questions are formulated. By using this method the formulated, sub-research questions correspond with the different elements of the research framework (Verschuren & Doorewaard, 2010). General Research Question: How can Aviko B.V. organise their Absorptive Capacity to create and act on strategic foresights of the external business environment? Sub-research Questions: 1. What are prevalent literature insights on AC? 2. What are prevalent literature insights on how AC can be supported by using knowledge of the EBE? 3. What are prevalent literature insights on the influence of external venturing on AC? 4. Of which elements consists the theoretical AC framework and how can it create strategic foresights of the EBE? 5. Which processes and routines do firms, active on the foodservice market, use to deploy AC in their commercial operations? 6. What are the effects of external venturing on the AC of firms active on the foodservice market? 7. What knowledge of the EBE is important for Aviko B.V. in order to deploy AC in their commercial operations? By confronting the obtained knowledge of the theoretical with the empirical part an answer is given on the general research question. Finally, the corporate AC framework is visualised. Definition Concepts To create an univocal understanding of the different terms used in the proposal de different concepts are defined in Table 1.1. Table 1.1: Definition of concepts Concept Absorptive Capacity (AC) Absorptive Capacity framework Business environmental scanning External business environment (EBE) External Venturing Foodservice market Strategic foresight Definition Absorptive Capacity (AC) is defined as a set of organisational processes and routines by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organisational capability (Zahra & George, 2002). In this research absorptive capacity framework is understood as a visualisation of the four AC dimensions, antecedents, and outcomes, the knowledge areas and information sources of the EBE and the influence of external venturing on AC. Business environmental scanning is the scanning of the relevant physical and social factors outside the boundary of an organisation that are taken into consideration during organisational decision-making (Daft, Sormunen, & Parks, 1988). The external business environment constitutes all the factors outside an enterprise that offer opportunities or threats (Shaikh, 2010). Firms are expanding, for several reasons, into existing or new domestic and international markets (Zahra & Hayton, 2008). External venturing includes modes such as mergers, acquisitions, joint ventures, and alliances, corporate venture capital and disposals (Williams & Lee, 2009). In this research the foodservice market consist of the specific sub-categories: 100! Home delivery and takeaway, cafes and bars, fast food, full-service restaurants, self-service cafeterias, and street stalls and kiosks (Euromonitor, 2016). Strategic foresight is defined as: A practice that permits an organisation to lay the foundation for future competitive advantage (Rohrbeck, Battistella, & Huizingh, 2015). The power of Absorptive Capacity 4

13 1.2 Technical Research Design The technical research design is composed of three sections. Section will describe which research strategies are chosen to carry out this research. Subsequently, the different materials required and how this is going to be gathered is explained (section 1.2.2). Research Strategies Verschuren and Doorewaard (2010) defines five different research strategies that can be applied when doing scientific research. These are a survey, experiment, case study, grounded theoretical approach, and desk research. Different research strategies are used for the four parts as presented in the research framework, section During the first and second part (I and II) a desk research is used, since literature insights are formulated and the theoretical AC framework is visualised, based on secondary data from behind the desk (Kumar, 2014). During the third part (III), a combination of a desk and case study is used because data is collected both from behind the desk and in the field. The final part (IV) will confront the theoretical with the empirical research. The rest of this section will elaborate more on the strategies used by explaining the different qualitative research methods used. Part I and II Desk research: The first goal of the theoretical review is to gain prevalent literature insights on organising AC, understanding its dimensions, antecedents, and outcomes. One can achieve this by quickly examining large datasets or by thoroughly examine limited datasets. For the analysis of AC, a large number of data will be used. The second goal of the theoretical review is to gain prevalent literature insights on the EBE, understanding the underlying knowledge areas and information sources and on how AC can be supported by scanning the EBE on a proactive and routine basis. For the analysis of the EBE, knowledge areas and information sources a large dataset will be used and a limited dataset will be used to gain insights on how AC can be supported by scanning the EBE. The third and final goal of the theoretical review is to gain prevalent literature insights on the influence of external venturing on AC. For this analysis a small dataset will be used. During the literature study evidence will be provided, by analysing best current practices, how AC and scanning the EBE works in practice. Finally, conclusions are drawn and a theoretical AC framework is defined. This framework includes the AC dimensions, antecedents and outcomes, the knowledge areas, and information sources of the EBE. Part III Desk research and case study: The goal of part III is to further elaborate on the theoretical AC framework to make it applicable for Aviko B.V. Here, evidence is gathered by analysing contrasting and supporting statements about the theoretical AC framework. It is possible that new AC and/or external venturing empirical insights, that where not covered in the theoretical review, are found. face-to-face interviews with experts will be held whose area of expertise are AC and/or external venturing of the foodservice market. The face-to-face interviews will consist of a semi-structured questions and gathers information about a subject which is missing consensus. The answers given by the experts are transcribed and analysed on broad outlines and differences. This information is returned to the experts, where they can supplement or adjust their initial answers, for one or more rounds until consensus is achieved. By using this method, experts form a well-considered opinion and the researcher obtain knowledge about a certain phenomenon. By using a triangulation of data sources the construct validity is increased. Finally, conclusions are drawn concerning the processes and routines are analysed that firms, active on the foodservice market, use to deploy AC in their commercial operations by scanning the EBE on a proactive and routine basis. In order to analyse the critical knowledge of the EBE for Aviko B.V. in order to deploy their AC in their commercial operations in a real life case a single case study is used (Vaus, 2001). By using a single case study one case is thoroughly examined (Verschuren & Doorewaard, 2010). Here, multiple experts of Aviko B.V. are interviewed that have knowledge about the EBE of Aviko B.V. The face-to-face interviews consists of semi-structured questions. However, besides creating consensus about AC and external venturing of Aviko B.V., consensus will be achieved about the corporate AC framework for Aviko B.V. This will be done by constantly updating the AC framework until consensus is achieved. Because Aviko B.V. is the object of research the external validity is not high enough to generalise the outcomes of this research to other firms active on the foodservice market. However, the outcomes of this research gives firms a fundamental approach how to organise their AC and EBE. The internal validity is guarded by giving evidence that the theoretical AC framework also works in practice. Finally, a corporate AC framework for Aviko B.V. is presented. The power of Absorptive Capacity 5

14 Research Materials In order to define what kind of information is needed to answer the sub-research questions the research objects, information sources and accessibility need to be known (Verschuren & Doorewaard, 2010). This section will address these items for the seven sub-research questions as provided in section The results are shown in Table 1.2. Table 1.2: Research materials Subresearch Information sources question 1. Scientific literature: Absorptive capacity: a review reconceptualization and extension (Zahra & George, 2002) and Absorbing the Concept of Absorptive Capacity: How to Realize Its Potential in the Organization Field (Volberda, Foss, & Lyles, 2010). 2. Scientific literature: UK executives vision on business environment for information scanning A cross industry study (Xu, Kaye, & Duan, 2002). 3. Scientific literature: The effect of international venturing on firm performance: The moderating influence of absorptive capacity (Zahra & Hayton, 2008). Accessing Literature search methods and best current practices: Absorptive Capacity, knowledge acquiring, assimilating, transforming and exploiting, Dynamic capabilities and Resource Based View. Literature search methods and best current practices: Environmental scanning, information management, information technology, data-driven decision making, decision science, information aggregation and knowledge based capabilities. Literature search methods: External, international, national, corporate venturing. 4. Based on sub-research questions 1 3. Based on sub-research questions Documents foodservice market: IFAMA, ( Euromonitor International ( Foodservice Europe ( world potato markers ( Informa ( documents competitors, Web of Science. Face-to-face expert interviews Experts interviews: Friesland Campina, Unilever Food solution, Suikerunie, Duynie, Sensus, SVZ, Royaan, Flagship Europe, Gulpener, Erasmus University (EUR), and University Delft (TU). 6. Expert interviews Aviko B.V.: Managers Aviko B.V. Face-to-face expert interviews 1.3 Report Structure This research is carried out the period of January 2016 July The theoretical AC framework is defined from January to March. Next, the empirical data is collected from the 19 th of April to 11 th of May (expert interviews) and from 17 th of May to 27 th of May (single case interviews). Finally, the analysis is executed in June. This report is structured as follows: first, chapter 2 covers part I and II of the research framework; the theoretical part and the defined theoretical AC framework. In doing so, an answer will be given to sub-research questions (1) to (4). Secondly, chapter 3 will elaborate on the methodology used during the empirical research. Third, chapters 4 and 5 chapter will cover part III of the research framework; the empirical research. The two chapters will give an answer to sub-research questions (5), (6) and (7). Finally, chapter 6 covers part IV of the theoretical framework; analytical and will discuss alternative explanations and give an answer to the general research question. Chapter 6 will close with the limitations and theoretical and business implications. The power of Absorptive Capacity 6

15 2. Literature Review This chapter covers part I and II of the research framework; the theoretical part and the defined theoretical AC framework. In doing so, an answer is given to sub-research questions (1) to (4). First, section 2.1 gives prevalent literature insights on AC. Second, section 2.2 gives prevalent literature insights on how AC can be supported by using knowledge of the EBE. Third, section 2.3 gives prevalent literature insights on the influence of external venturing on AC. Finally, the theoretical AC framework will be presented in section Absorptive Capacity This section examines how AC can create high quality strategic foresights of the EBE, how these foresights will improve the quality of strategic decisions and create sustainable competitive advantage. By doing so, an answer will be given to the sub-research question (1): What are prevalent literature insights on AC?. First, the AC concept is defined by analysing different AC definitions, dimensions, antecedents and outcomes (section 2.1.1), and contingency factors (section 2.1.2). Second, AC processes and routines are analysed (section ). Finally, the conclusions are formulated (section 2.1.4). Definition, Dimensions, and Antecedents & Outcomes It is important to create clarity about the AC concept before it can be studied empirically. Therefore, we first need to define AC. The AC concept is originally developed by Cohen & Levinthal (1990) who defined AC as the ability of a firm to recognize the value of new, external knowledge, assimilate it, and apply it to commercial ends. This ability is largely dependent on the level of prior related knowledge of individual actors inside the organisation. This indicates that the AC can be developed by investing in the learning capacity of firms. Since this seminal paper different theories related to the AC concept have been elaborated. The most prominent theories, in the last two decades, are AC related to dynamic capabilities (Zahra & George, 2002) (Volberda, Foss, & Lyles, 2010); innovation (Enkel & Heil, 2014), learning (Lane, Salk, & Lyles, 2001) (Lane, Koka, & Pathak, 2006), knowledge-based view (Martínde Castro, 2015), and coevolution (Volberda & Lewin, 2003). AC has also been studied empirically by scholars using different methods (surveys and case studies), units of analysis (countries, industries, interorganisational, and intraorganisational), and measurements (Backmann, Hoegl, & Cordery, 2015) (Zahra & George, 2002) (Volberda, Foss, & Lyles, 2010). However, despite the interest in the AC concept, a lot of ambiguity and diversity of definitions, dimensions, antecedents, and outcomes still exist (Backmann, Hoegl, & Cordery, 2015). As stated in section 1.1.1, AC is developed as a dynamic capability. Dynamic capabilities enables firms to reconfigure its resource base and adapt to changing market conditions in order to achieve a competitive advantage (Zahra & George, 2002). The ability to change and reconfigure its resources distinguishes dynamic capabilities from ordinary or substantive capabilities (Teece, Pisano, & Shuen, 1997) (Zahra, Sapienza, & Davidsson, 2006). For example, new routines for new product development (NPD) is an ordinary capability, but when these routines have the ability to change, NPD becomes a dynamic capability. As AC is defined as a dynamic capability this also indicates that it is creating value and sustainable competitive advantage through appropriate management that effectively deploy firms external knowledge (Camisón & Fores, 2010) (Floyd & Lane, 2000). Other goals AC are protecting shareholders interest, exploring activities that lead to innovativeness, reduce of potential strategic errors, and increase the ability to learn (Zahra, Filatotchev, & Wright, 2009). Thus, knowledge has a central position in the AC processes and routines (Zahra & George, 2002). The reconceptualization of the AC construct by Zahra & George (2002) is considered as the next step in transforming new knowledge in a set or organisational processes and routines. Zahra & George (2002) view AC as a dynamic capability and distinguishes four complementary dimensions. Many scholars used, applied, and validated the theory of Zahra & George (2002) (Volberda, Foss, & Lyles, 2010) (Camisón & Fores, 2010) (Todorova & Durisin, 2007). We adhere to this common practise and therefore elaborate this AC concept of Zahra & George (2002). The power of Absorptive Capacity 7

16 Absorptive Capacity Dimensions Countries, industries in it, and firms in industries use different AC strategies (Eisenhardt & Martin, 2000). As a result, the AC literature has it that different sustainable competitive advantages are created. Zahra & George (2002) identified four commonalities in these strategies that, if done successfully, create sustainable competitive advantage. These four commonalities are referred to as the four AC complementary dimensions: acquisition, assimilation, transformation, and exploitation. These dimensions combined are also seen as the capacity of firms to learn and solve problems (Noblet, Simon, & Parent, 2011). Table 2.1 provides a summary overview of these dimensions with associated AC components. Table 2.1: The Four Complementary Dimensions of Absorptive Capacity AC dimension Definition AC Components Acquisition Assimilation Transformation Exploitation Acquisition refers to a organisations capability to identify and acquire externally generated knowledge that is critical to its operation. Assimilation refers to the organisations processes and routines that allow it to analyse, process, interpret and understanding knowledge obtained from external information sources. Transformation denotes a firm's capability to develop and refine the routines that facilitate combining existing knowledge and the newly acquired and assimilated knowledge. Exploitation as an organizational capability is based on the routines that allow firms to refine, extend, and leverage existing competencies or to create new ones by incorporating acquired and transformed knowledge into its operations. Sources: Based on Zahra & George (2002) and Noblet, Simon and Parent (2011) Type of new knowledge Prior knowledge and investments Knowledge acquisition and licenses Contractual agreements Actors motivations Organisational culture Common and shared language Intensity and speed Position of the firm in the network Participation in decision-making Ability to detect opportunities in the environment Routinization Coordination capacity Management support Personnel turnover Development of new products Diversification Routines of knowledge creation Number of new products Protection systems Use and implementation The four dimensions have been divided into the Potential AC (hereafter, PAC ) and Realized AC (hereafter, RAC ) (Zahra & George, 2002). The PAC is defined as the ability of firms to acquire and assimilate new external knowledge that enables firms to continuously improve, renew, and increase their knowledge stocks (Zahra & George, 2002). The RAC, consisting of transformation and exploitation, is defined as the ability to create foresights from existing and new knowledge and incorporate these foresights into the operations of the firm (Zahra & George, 2002)(Battistella, 2014). Such strategic foresights about the EBE is supposed to improve the quality of strategic decisions (Rohrbeck, 2010). With unbalanced firms, those that focus primarily on the PAC are continually renewing their knowledge stock, but can be confronted with high knowledge acquisition costs and may continue be late in introducing relevant innovations to the market. Conversely, firms that focus primarily on the RAC are able to achieve short-term profits but are not able to respond timely to changes of the EBE (Jansen, Bosch, & Volberda, 2005). One can consider that a high PAC is the starting point for creating sustainable competitive advantage. When firms invest heavily in the PAC it will create sustainable competitive advantage. However, despite the importance of PAC, the RAC is the primary source of performance improvements. Thus, it is argued that firms can only create sustainable competitive advantage when creating a high PAC and a high RAC. This implies that firms need to understand a process view of PAC and RAC processes and routines. A process view is created when firms identify the value added knowledge of the EBE. From the identified knowledge, firms need to analyse and develop processes and routines so that the acquired knowledge is analysed, processed, interpreted, and understood by the right actors at the appropriate moment. Next, by using existing and assimilated knowledge, processes, and routines need to be analysed and developed so that the actors aggregate, disperse, and share knowledge with other actors at appropriate moment. Finally, firms need to analyse and develop processes that refines, extends, and leverages existing competencies or to create new ones. Thus, high a high PAC and RAC are needed for an adequate deployment of AC in commercial operations in order to create sustainable competitive advantage. The power of Absorptive Capacity 8

17 Absorptive Capacity Antecedents and Outcomes AC is influenced by internal and external factors (Noblet, Simon, & Parent, 2011). This means that different exogenous and endogenous factors influence the PAC and RAC (Zahra & George, 2002). To integrate, apply or improve the organisational AC processes and routines, these factors need to be analysed. Therefore, this section focusses on antecedents and outcomes of AC. The literature on AC antecedents is extensive and diverse. Scholars examined AC antecedents in general (Zahra & George, 2002) and related to PAC and RAC (Jansen, Bosch, & Volberda, 2005). Furthermore, scholars examined specific antecedents (Lane, Salk, & Lyles, 2001) and groups of antecedents (Volberda, Foss, & Lyles, 2010). Finally, different levels of antecedents, as for example, individual, managerial, knowledge, interorganisational, intraorganisational, team, micro, and macro are analysed (Volberda, Foss, & Lyles, 2010) (Backmann, Hoegl, & Cordery, 2015) (Martinkenaite & Joachim Breunig, 2016). Because the objective of this research is to embed AC in organisational processes and routines the focus will be on intraorganisational antecedents. These antecedents will be complemented with knowledge antecedent as proposed by Cohen and Levinthal (1990) and Zahra & George (2002). The analysis of these antecedents is based on well-established published papers and because AC is a dynamic capability, that changes over time, new contributions to the field of antecedents are also selected. Table 2.2 summarises the knowledge and intraorganisational antecedents of AC determined. Table 2.2: Organisational and knowledge antecedents of Absorptive Capacity Antecedents Influencing Author Knowledge related Complementarity external information sources PAC (Zahra & George, 2002); (Fosfuri & Tribó, 2008); (Araújo Burcharth, Lettl, & Ulhøi, 2015); (Vega-Jurado, Gutierrez-Gracia, & Fernández-de-Lucio, 2008) Experience PAC (Zahra & George, 2002); (Cohen & Levinthal, 1990); (Fosfuri & Tribó, 2008); (Araújo Burcharth, Lettl, & Ulhøi, 2015) Application of experience RAC (Camisón & Fores, 2010) Involvement in spreading the PAC (Camisón & Fores, 2010) knowledge Knowledge management PAC (Camisón & Fores, 2010) Knowledge of the competition PAC (Camisón & Fores, 2010) Openness towards the PAC (Camisón & Fores, 2010) environment Transmission of IT-based knowledge RAC (Camisón & Fores, 2010) Intraorganisational Socialization RAC (Jansen, Bosch, & Volberda, 2005); (Andersen & Foss, 2005); (Vega-Jurado, Gutierrez-Gracia, & Fernández-de-Lucio, 2008) Cross-functional interfaces and PAC and RAC (Jansen, Bosch, & Volberda, 2005); (Fosfuri & Tribó, 2008); (Roberts, 2015) cooperation Formalization RAC (Jansen, Bosch, & Volberda, 2005); (Vega-Jurado, Gutierrez-Gracia, & Fernández-de-Lucio, 2008) Data integration PAC and RAC (Roberts, 2015); (Bolívar-Ramos, Carcía-Morales, & Martín-Rojas, 2013) Internal development of PAC (Camisón & Fores, 2010) technological competences Assimilation of technology PAC (Camisón & Fores, 2010) Industrial benchmarking PAC (Camisón & Fores, 2010) Attendance at training courses PAC (Camisón & Fores, 2010) and professional events Renewal Capacity RAC (Camisón & Fores, 2010) Adaptation Capacity RAC (Camisón & Fores, 2010) Exchange of scientific and RAC (Camisón & Fores, 2010) technological knowledge Technological pro activeness RAC (Camisón & Fores, 2010) Participation in decision making PAC (Jansen, Bosch, & Volberda, 2005) Job rotation PAC and RAC (Jansen, Bosch, & Volberda, 2005) Routinization PAC (Jansen, Bosch, & Volberda, 2005) Connectedness RAC (Jansen, Bosch, & Volberda, 2005) R&D cooperation PAC (Camisón & Fores, 2010) Internal communication PAC and RAC (Andersen & Foss, 2005) Organizational forms PAC and RAC (Bosch, Volberda, & Boer, 1999) Combinative capabilities PAC and RAC (Bosch, Volberda, & Boer, 1999) Technical IT skills PAC and RAC (Bolívar-Ramos, Carcía-Morales, & Martín-Rojas, 2013) The power of Absorptive Capacity 9

18 Table 2.2 gives reason to conclude that knowledge-related antecedents mainly influence the PAC. This is in line with the definition of PAC that relates it to the organisational knowledge stocks. Furthermore, experience and complementary external information sources are perceived as the most critical knowledge antecedents influencing the PAC and decision making (Zahra & George, 2002). This implies that directing knowledge search to areas where firms have experience and the exposure to complementarity external information sources results in a high PAC. The most important antecedent of the RAC is not shown in Table 2.2 and that is the PAC itself. Furthermore, Table 2.2 indicates that a wide scale of intraorganisational antecedents are considered as significantly important PAC and RAC antecedents. Since the knowledge and intraorganisational antecedents effect the AC one can consider that if firms get a better understanding of their critical antecedents they will be able to improve their AC. However, as stated the types of antecedents and their intensity will differ from country, industry, and organisation. Therefore, an analysis of the country, industry, and firm is required. Finally, new scholars are getting more focused on the influences of information technology on AC (Roberts, Galluch, & Grover, 2012). Overall scholars agree on the potential outcomes of AC. The most prominent outcomes of AC are sustainable competitive advantage, innovation and financial performance (Cohen & Levinthal, 1990) (Zahra & George, 2002) (Tsai, 2001) (Escribano, Fosfuri, & Tribó, 2009) (Kostopoulos, Papalexandris, Papachroni, & Loannou, 2011) (Lane, Salk, & Lyles, 2001). Furthermore, to a more limited extend, AC also results in two other outcomes namely intra- and interorganisational learning and strategic flexibility (Roberts, 2015) (Lane, Salk, & Lyles, 2001) (Zahra & George, 2002). However, firms can also have too much AC or focus to much on PAC or RAC. Firms that are too focused on PAC continually renew their knowledge can have high acquisition costs but do not create benefits from exploitation. Conversely, firms that are too focused on RAC can be able to achieve short-term benefits but run the risk to be unable to respond to changes of the EBE (Jansen, Bosch, & Volberda, 2005). Figure 2.1 gives an overview of the preliminary theoretical AC framework with the antecedents and outcomes. Figure 2.1: Preliminary Theoretical Absorptive Capacity Framework Six knowledge related and seven intraorganisational PAC antecedents have an influence on the PAC. In addition, two knowledge related and seven intraorganisational RAC antecedents influences the transformation and exploitation of the acquired knowledge. Finally, seven intraorganisational antecedents influence the overall AC of firms. Furthermore, five AC outcomes are analysed. During the single case study the PAC and RAC antecedents within the case of Aviko B.V. are analysed. The power of Absorptive Capacity 10

19 Contingent factors Before a process view of the AC processes and routines will be analysed, the factors affecting the general setting of PAC and RAC processes and routines need to be analysed. Therefore, this section analyses the absorptive tension, social mechanisms and regimes of appropriability as these factors (Zahra & George, 2002). Absorptive Tension Firms have a strategic urgency or impetus for stimulating AC processes and routines (Lewin, Massini, & Peeters, 2011). Because these processes and routines are operationalised at an operational, tactical, and strategic level it is assumed that they also will contribute to foresights on these levels. We define the urgency or impetus of firms to stimulate AC processes and routines on an operational, tactical and/or strategic level, as the absorptive tension of firms. One can consider that, for example, R&D intensive firms have a high absorptive tension, on a strategic level, towards developing or redefining a new innovation strategy, while firms active on the foodservice market have a high absorptive tension, on an operational level, towards implementing legal requirements. Furthermore, one can consider that, for example, the legal requirements differ in The Netherlands in comparison with Germany. This implies that absorptive tension is determined by different industry, organisation, and country characteristics. Social Mechanisms: In general scholars agreed on the importance of social mechanisms. However, Zahra & George (2002) define social mechanisms as a moderator variable on the relationship between the PAC and RAC. Inversely, other scholars state that social mechanisms primarily influences the RAC (Jansen, Bosch, & Volberda, 2005) and all components of AC (Todorova & Durisin, 2007). Social mechanisms consists of the connectedness and socialization tactics of firms (Jansen, Bosch, & Volberda, 2005). Connectedness are structural networks which encourage communication and the exchange of knowledge through the organisation. The connectedness develops trust and creates a level of commonly known knowledge. Socialization tactics establishes interpersonal relationship that leads to congruence of values, needs, and beliefs (Jansen, Bosch, & Volberda, 2005). Thereby, socialization tactics enhance transformation and exploitation of new knowledge. During this research we propose that social mechanisms consist of connectedness and socialization tactics (Jansen, Bosch, & Volberda, 2005) that influences all components of AC (Todorova & Durisin, 2007). Regimes of appropriability: According to Zahra & George (2002) the regime of appropriability moderate the relationship between AC and the sustainable competitive advantage. The regime of appropriability refers to the institutional and industry dynamic that affect the firm s ability to protect and benefit from advantages of new products or processes (Zahra & George, 2002). Thus, firms active on industries with low appropriability regimes have lower returns of their AC. However, the empirical research of Cohen & Levinthal (1990) counterbalances this effect. They state that the higher the competitors spillovers, the more incentives firms have to invest in their AC. Until now it is not clear whether firms with a high appropriability regime are able to promote its competitive advantage, and/or that a higher appropriability regime will result in more spillovers. Therefore, during this research, both situations are taken into account. Power Relationships: The social mechanisms explain how connectedness and socialization tactics influences all components of AC. However, it does not explain why some acquired knowledge of the EBE is used and other ignored. Todorova & Durisin (2007) addressed this gap in the contingent factors of both Cohen & Levinthal (1990) and Zahra & George (2002). They added the concept of power relationships which influences the RAC of firms. They stated that power relationships are the reason why some knowledge of the EBE is used by firms and why other knowledge is ignored (Todorova & Durisin, 2007). Furthermore, different actors within and outside firms are able to influence the RAC of firms. One can consider that these power relationships are related with the social mechanisms. However, no evidence has been provided to supports this. The power of Absorptive Capacity 11

20 Figure 2.2 visualises the factors, dimensions, and outcomes of AC into the preliminary theoretical AC framework 1. Figure 2.2: Preliminary Theoretical Absorptive Capacity Framework 1 Processes and Routines The preliminary theoretical AC framework 1 shows no insights in the PAC and RAC processes and routines. Therefore, section will further elaborate on the PAC and RAC processes and routines. In general, organisational processes are a set of actions in order to achieve a particular end and routines consist of repetitive patterns of activity of an individual or group (Loch, Sengupta, & Ahmad, 2013). These processes and routines are operationalised at different organisational levels, as for example, product lines and divisions. However, just as we did with the absorptive tension, we defined these levels as operational, tactical, and strategic because we want to create foresights of the EBE on these levels. Based on this definition, one can consider that firms need to implement certain routines in their critical AC processes. Successful routines require frequent exercise and practice (Winter S., 2003) and their development is path dependent (Lewin, Massini, & Peeters, 2011). This indicates that, because of changing internal and external conditions, AC processes and routines need to be continuously developed. This is also in line with viewing AC as a dynamic capability. Because of the contextual and idiosyncratic character of AC, it is not possible to standardise widely recognised processes and routines (Lewin, Massini, & Peeters, 2011). However, a few scholars attempted to generalising AC processes and routines. Teece, Pisano & Shuen (1997) used the integration of quality, miniaturization, and systems as examples of processes and routines. Furthermore, Lewin, Massini & Peeters (2011) applied the concept of metaroutines as higherlevel routines on AC. Metaroutines are higher-level routines that define the general, abstract purpose of routines and that are expressed by practiced routines (Lewin, Massini, & Peeters, 2011). The PAC metaroutines include the identification of EBE knowledge and learning from and with external firms. The RAC metaroutines consists of formal and informal processes directed towards facilitation of internal variation, selection, and replication processes (Lewin, Massini, & Peeters, 2011). Because innovation is defined as one of the prominent outcomes of AC we analyse the organisational processes and routines needed to sustain innovations. Resemblances between these processes and routines and the PAC and RAC processes and routines are then analysed. The concept of sustaining innovation is chosen because the goal of this research is to create sustainable competitive advantage. Sustaining innovations improve performance along dimensions that mainstream customers have always valued (Reinhardt & Gurtner, 2015). Furthermore, sustaining innovations facilitates the creation of novel innovations, solving real-time problems, and link present innovations with prior related knowledge and future aspirations (Bartel & Garud, 2009). Firms have systematised the generation and testing of novel ideas. Furthermore, systematically using prior related knowledge as raw materials will sustain innovations (Hargadon & Sutton, 2000). So, how do these firms systematically use prior related knowledge to sustain innovation? The power of Absorptive Capacity 12

21 Firms continuously use four steps to sustain innovation, which are defined as the knowledge brokering cycle (Hargadon & Sutton, 2000). These steps are: capturing good ideas, keeping ideas alive, imagining new ideas based on prior ideas, and putting promising ideas to the test. As stated before, only a few scholars attempted to operationalise the AC concept. However, the literature on sustaining innovation is more diverse. Because of the explained resemblances between AC and innovation we want to determine how firms can sustain and deploy innovations their commercial operations. Based on the results we will determine research proposition which will be used during the empirical research. We adhere to this cycle by reformulating these steps into the following: 1. capturing good knowledge (Acquisition); 2. keep knowledge alive (Assimilation); 3. imagine new knowledge using old knowledge (Transformation); 4. putting promising knowledge into practice (Exploitation). 1. Capture good knowledge (Acquisition): The first step in sustaining innovation is to capture good ideas. Firms recognise that prior related ideas are the main source for new ideas (Hargadon & Sutton, 2000) (Bartel & Garud, 2009). Firms capture proven technologies, business models, products, and practices. Next, instead of just archiving this knowledge, employees or departments analyse how and why these technologies, business models, products, and practices work in order to learn from it. Furthermore, for sustaining innovation it is crucial that knowledge search is directed towards value added products (Zuidema, 2014). For example, when firms want to sustain innovation they collect related products to their own, observe the users, and use their prior related ideas to create new ideas. From the literature on sustaining innovation we, first, derive that acquiring knowledge is a continuous process that needs to be directed towards value added products and is based on prior related knowledge. Taken the created literature insights of the PAC literature, the following research propositions (hereafter, RP. ) can be tested: RP. 1A: Firms can acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and is based on prior related knowledge. 2. Keep knowledge alive (assimilation): The second step is keeping ideas alive through time. Cognitive psychologists have shown that employees often lack the necessary knowledge at the right time so that they can solve problems (Hargadon & Sutton, 2000). The organisational memory is even tougher to maintain because of geographical distances, internal competition, bad incentive systems, and employees leaving (Hargadon & Sutton, 2000). Therefore, sustaining innovation requires cultural mechanisms that provide both the coherence and flexibility needed for people throughout an organisation to productively integrate their ideas and efforts into everyday practices (Bartel & Garud, 2009). One can consider that setting up a database is effective for archiving ideas and solutions. However, this does not link prior related knowledge with new ideas especially when employees are lacking experience (Bartel & Garud, 2009). Thus, to sustain innovation, firms need to translate their activities across time, so that present and future efforts coordinate with their past. Finally, it is of importance that firms spread knowledge about who knows what (Hargadon & Sutton, 2000). From the literature on sustaining innovation we derive that, from a PAC perspective, firms can assimilate knowledge by standardising the analysis, processing, interpreting, and understanding of acquired knowledge. In addition, firms need to translate their activities across time, so that prior related knowledge is linked with new knowledge. This can be achieved by, for example, effective meetings where different internal and external actors analyse, process, interpret, and understand specific knowledge. Furthermore, firms need cultural mechanisms to keep knowledge alive and communicate internally who is responsible for what knowledge. Taken the created literature insights of the PAC literature, the following RP can be tested: RP. 1B: Firms can assimilate knowledge by standardising the analysis, processing, interpreting, and understanding of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. The power of Absorptive Capacity 13

22 3. Imagine new knowledge using new and prior related knowledge (transformation): The third step of the cycle occurs when employees recognise new ideas using prior related ideas which they kept alive (Hargadon & Sutton, 2000). This is accomplished when employees are able to use analogical thinking which links new and prior related ideas. Prior research suggests that novel innovations emerge through the combination from different domains of organisational activities (Bartel & Garud, 2009). To accomplish analogical thinking firms can use formal brainstorm sessions with people that have disparate perspectives and capabilities with the risk of dysfunctional confrontations, formal and informal social interactions. In addition, firms needs a strategy directed to innovation and need a structure, set of systems, and a cultural infrastructure that fosters innovation and enables social interactions (Hargadon & Sutton, 2000) (Bartel & Garud, 2009) (Figueroa & Conceicao, 2000). From the literature on sustaining innovation we derive that, from a RAC perspective, firms can create strategic foresights (transform knowledge) when firms have employees that are able to use analogical thinking to create new knowledge by linking prior related knowledge with new knowledge. Furthermore, strategic foresights can be influenced by operational and tactical foresights. Finally, firms need to be knowledge driven and have a structure, set of systems, and a cultural infrastructure that fosters innovation and enables productive formal and informal social interactions. Taken the created literature insights of the RAC literature, the following RP can be tested: RP. 2A: Firms can create strategic foresights, influenced by operational and tactical foresights, when transforming prior related and new knowledge. In addition, firms need to be knowledge driven and have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. 4. Putting promising knowledge into practice (Exploitation): Having a good idea is not adding value. Therefore, it has to be put into practice to analyse the actual potential. Firms should be able to quickly test novel ideas. Whereas the first two steps can be seen as a linear process this final two step are not. When novel ideas emerge they create a shock in the organisational systems and as a result a planning is set in motion (Garud, Tuertscher, & Van de Ven, 2013). Even though, some promising ideas will fail you can learn from it and perhaps use it later. First, firms need to connect promising ideas with business opportunities (Bartel & Garud, 2009). Part of the innovation processes is that after the idea of a new product is born, it can be judged by marketing and finance for credibility and feasibility (Zuidema, 2014). Put promising ideas into practice requires real-time coordination among actors with different kinds of knowledge, systems of meaning and modes of acting (Bartel & Garud, 2009). From the literature on sustaining innovation we derive, from a RAC perspective, that transforming and exploiting knowledge is not a linear process. Furthermore, to sustain AC, final decisions on how to act on foresights need to be connected with business opportunities. Finally, new knowledge can shock the organisational system and set a planning in motion. Taken the created literature insights of the RAC literature, the following RP can be tested: RP. 2B: Firms can increase the quality of strategic decisions by using strategic foresights about the External Business Environment that are connected with their business opportunities. Conclusion This section concludes how AC can create high quality strategic foresights of the EBE, how these foresights will improve the quality of strategic decisions and finally create sustainable competitive advantage. By doing so an answer will be given to the sub-research question (1): What are prevalent literature insights on AC?. AC is a dynamic capability that creates value and protects shareholders interest through effectively deploy firms external knowledge. Firms create high quality strategic foresights of the EBE by organising their processes and routines so that a high PAC and RAC is achieved. A high PAC, consisting of acquiring and assimilating new knowledge, enables firms to continuously improve, renew and increase their knowledge stocks. We define the PAC as processes and routines whereby firms acquire and assimilate knowledge. Subsequently, a high RAC, consisting of transforming and exploiting new knowledge, creates strategic foresights from existing and new knowledge and incorporate these foresights into the operations of firms. These foresights will improve the quality of strategic decisions and finally create sustainable competitive advantage. We define the RAC as processes and routines whereby firms use prior related knowledge and new knowledge to create strategic foresights and make high quality decisions based on these foresights. The power of Absorptive Capacity 14

23 Four contingency factors: absorptive tension, power relationships, social mechanisms, and regimes of appropriability are discussed that effect the general setting of PAC and RAC. Based on the literature insights of AC the preliminary theoretical AC framework 2, including the RP. 1A, 1B, 2A, and 2B, is visualised in Figure 2.3. Figure 2.3: Preliminary Theoretical Absorptive Capacity Framework 2 We are still lacking information about how AC can be supported by using knowledge about the EBE and the different knowledge areas and sources of the EBE. Therefore, section 2.2 will investigate the influence of the EBE on AC and which knowledge areas and sources can be used to scan the EBE on a proactive and routine basis in order to deploy AC in the commercial operations of the firm. 2.2 Absorptive Capacity and External Business Environment According to Zahra & George (2002) internal and external stimuli trigger firms to acquire and assimilate knowledge from external sources. Internal triggers could be organisational crisis or a refinement of the business strategy. External triggers could be technological shifts, innovations and/or an increasing competition. These triggers induce and intensify the search of external knowledge by firms (Winter, 2000). However, as stated in section 1.1.2, identifying and acquiring knowledge is done on an ad-hoc and non-routine basis. As a result, knowledge about the EBE is ignored when no internal and external stimuli trigger firms. Therefore, this section covers the sub-research question (2): What are prevalent literature insights on how AC can be supported by using knowledge of the EBE?. Section defines the term EBE and analyses how the EBE influences the AC of firms. Section describes the different knowledge areas and sources. Finally, conclusions are formulated in section Definition Research indicates that firms rely heavily on available knowledge of the EBE. This knowledge is used to support strategic purposes, as for example, strategy development (Porter & Millar, 1985), new product development and decision making (Eisenhardt & Martin, 2000). In moderately dynamic markets, change occurs frequently but because of stable industry structures these can be roughly predicted (Eisenhardt & Martin, 2000). These firms are operating on so called low velocity environments. However, the EBE of some industries change so fast that knowledge becomes inaccurate and quickly obsolete (Bourgeois & Eisenhardt, 1988). These firms are operating on high velocity environments. Bourgeois and Eisenhardt (1988) defined high velocity environments as environments in which there is rapid and discontinuous change in demand, competitors, technology, and/or regulation, such that information is often inaccurate, unavailable, or obsolete. The velocity level can be determined by analysing the rate of products, processes, and organisational changes in industries (Nadkarni & Narayanan, 2007b). Firms operating on environments with different velocity levels use different strategies for using the knowledge of the EBE. These differences, including industry examples, are summarised in Table 2.3. The power of Absorptive Capacity 15

24 Table 2.3: Level of Velocity and External Business Environment Knowledge Usage Level of velocity Environmental scanning strategies Industries Low Firms in low velocity industries assume their environment as stable and measurable. They collect detailed environmental knowledge to develop correct assumptions. Because the products, process and organisational changes in the industry are low, firms scan the environment intensively. High Firms in high velocity industries are creating their own EBE. Because the environment already changed before firms can collect the required knowledge. These firms constantly search for new ideas and experimenting beyond existing areas. Because the environment changes rapidly firms tend to focus on the most important factors of the EBE. Sources: based on (Nadkarni & Narayanan, 2007a) (Bogner & Barr, 2000) Aircraft, Paper. Steel, Semiconductor, computer, health care, and Gaming. Literature identifies several external dimensions of the EBE that moderates the form of strategy-performance relationships. Three dimensions that are often mentioned are environmental dynamism, complexity, and munificence (McArthur & Nystrom, 1991) (José Ruiz-Ortega, Parra-Requena, Rodrigo-Alarcón, & García-Villaverde, 2013) (Castrogiovanni, 2002). These velocity dimensions are explained in Table 2.4 Table 2.4: Velocity Dimensions Term Definition Environmental Dynamism Environmental Dynamism is defined as the degree of environmental change (Kim & Rhee, 2009). Environmental dynamism has three components: frequency (short or long timespan between changes), amplitude (difference of environmental state before and after change) and predictability (degree of variability in frequency and amplitude). The dynamism is empirically measured by the instability of sales, employment, value added and price-cost margin; Environmental Complexity Environmental Complexity is the hetero- or homogeneity of firms concentration or dispersion activities in the environment. The hetero- or homogeneity refers to the concentration of supply sources, customer groups, and diversity of industry products. The concentration- or dispersion refers to the geographical concentration of sales, employment and establishments. Environmental Environmental Munificence is defined as the capacity of the environment to sustain growth. Firms can Munificence sustain growth by sustaining their sales, employment, added value, and price-cost margin. Sources: based on (Castrogiovanni, 2002), (Wholey & Brittain, 1989), (Cannon & John, 2007) How these dimensions change over time in established and new industries is tested empirically (Castrogiovanni, 2002). This research concluded that all three dimensions tended to decrease over time in both the established and new industries. However, one can argue that the environmental dimensions will be different in high and low velocity industries and effects the AC. We propose that (1) the environmental dynamism determines the frequency, amplitude and predictability of the AC processes and routines, (2) that the environmental complexity determines the complexity of the AC processes and routines, and (3) that the environmental munificence determines the capacity of a firm to sustain AC. Firms that are able to adjust and entrain their firms on the basis of their velocity level will create competitive advantage over their competitors who do not. This is a result of a higher pace and quality of the strategic decision making process (McCarthy, Lawrence, Wixted, & Gordon, 2010). From the perspective that the EBE is an information source, the velocity level has important implications for firms. Zahra & George (2002) posit that the PAC enables firms, acting on high velocity environments, with the strategic flexibility and degrees of freedom to adapt and evolve. Based on this can be concluded that the velocity level of the industry influences the AC of firms and thereby the strategies they use. As elaborated on in section firms have different absorptive tensions. We define the velocity level of an industry, determined by three dimensions, as an important factor determining the absorptive tension of firms. Knowledge Areas and Sources The EBE constitutes all the factors outside a firm that offer opportunities or threats (Shaikh, 2010). These factors can be subdivided into general EBE and task or specific EBE (Aldehayyat, 2015). The general EBE refers to commonly indicated factors affecting firms indirectly, such as Political, Economic, Social, Technological, Environmental, and Legal (PESTEL) (Brown, 2007) (Adema & Roehl, 2010). The task or specific EBE factors affect firms directly are typically competitors, customers, and suppliers (McCarthy, Lawrence, Wixted, & Gordon, 2010) (Aldehayyat, 2015). Table 2.5 summarizes different knowledge areas mentioned in the literature. The power of Absorptive Capacity 16

25 Table 2.5: Knowledge Areas Knowledge area Emphasised by Market/Industry (Bourgeois & Eisenhardt, 1988) (McCarthy, Lawrence, Wixted, & Gordon, 2010) (Brown, 2007) (Albright, 2004) (Babatunde & Adebisi, 2012) (Peters & Brush, 1996) Competitors (Bourgeois & Eisenhardt, 1988) (McCarthy, Lawrence, Wixted, & Gordon, 2010) (Peters & Brush, 1996) (Aldehayyat, 2015) Customers/Consumer (Bhardwaj & Kumar, 2014) (Aldehayyat, 2015) Product (McCarthy, Lawrence, Wixted, & Gordon, 2010) Suppliers (Bhardwaj & Kumar, 2014) (Aldehayyat, 2015) PESTEL (McCarthy, Lawrence, Wixted, & Gordon, 2010) (Bourgeois & Eisenhardt, 1988) (Bhardwaj & Kumar, 2014) (Aldehayyat, 2015) (Brown, 2007) (Albright, 2004) (Babatunde & Adebisi, 2012) (Adema & Roehl, 2010) Supply Chain (Lau & Lo, 2015) Zahra & George (2002) propose that a high diversity of knowledge areas will positively influence the PAC of firms, while the experience with that knowledge influence the RAC. The organisational exposure to a diversity of information sources positively influences the propensity to explore new and/or related knowledge (Zahra & George, 2002). The exposure to external information sources can be increased by purchasing external knowledge through licensing and contractual agreements. Furthermore, the industry and the size of firms influence the use of external information sources (Aldehayyat, 2015) (Haase & Franco, 2011). Moreover, the type of sources are dependent on whether the firms is product or service based (Peters & Brush, 1996). The exposure to internal information sources can be increased by creating interorganisational relationships, as for example, R&D consortia, joint ventures, and alliances. As stated in section 2.1.1, directing knowledge search to areas where firms have experience and the exposure to complementarity external information sources results in a high PAC. Recent scholars have examined the effect of information sources on the AC of firms (Lau & Lo, 2015). One can consider that the information sources influence the knowledge antecedents and mostly effect the PAC. This research follows the classification scheme proposed by Keegan (1974) who stated that there are two information sources: External information sources that originate from outside the organisation, as for example, customers, competitors, and government publications which influences the PAC; Internal information sources that originate within the organisation, as for example, internal reports, and research which influences the RAC. Conclusion This section will provide a conclusion on how the EBE influences the AC and how AC can be supported by using knowledge of the EBE. By doing so an answer will be given to sub-research question (2): What are prevalent literature insights on how AC can be supported by using knowledge of the EBE? Firms operating on low velocity environments assume their environment as stable and measurable and firms operating on high velocity environments assume their environment in which there is rapid and discontinuous change. We propose that the environmental dynamism determines the frequency, amplitude, and predictability of the AC processes and routines. Furthermore, the environmental complexity determines the complexity of the AC processes and routines. Finally, the environmental munificence determines the capacity of a firm to sustain AC. In general, the velocity dimensions determine the absorptive tension. Based on the literature one can conclude that firms can use seven knowledge areas of the general and specific EBE to create opportunities or eliminate threats. Firms can use different internal and external information sources to scan the EBE in order to deploy the AC in their commercial operations. This is visualized in Figure 2.4; the preliminary theoretical AC framework 3. The power of Absorptive Capacity 17

26 Figure 2.4: Preliminary Theoretical Absorptive Capacity Framework Absorptive Capacity and External Venturing As proposed in section 2.2.2, the exposure to internal sources can be increased by creating interorganisational relationships, as for example, R&D consortia, joint ventures, and alliances. One of the benefits for expanding firms into existing or new domestic and international markets is that they can increase their internal knowledge stocks and thereby support their AC. Therefore, this section will give an answer to sub-research question (3) What are prevalent literature insights on the influence of external venturing on AC?. First, during section an analysis is performed on how firms can learn from the knowledge gained from external venturing activities. Next, section will examine how external venturing influences the AC of firms. Finally, in section prevalent literature insights will be formulated. External Venturing, Knowledge and Learning Firms have been encouraged, for different reasons, to undertake external venturing activities (Zahra & Hayton, 2008) (see section 1.1.2). The most common modes used by firms to undertake domestic and international external venturing activities are acquisitions, alliances, and corporate venture capital (Williams & Lee, 2009). Organisational learning scholars suggest that external venturing increases the ability of firms to learn new skills and capabilities (Milanov & Fernhaber, 2014) (Lyles & Salk, 1996) (Inkpen & Dinur, 1998). By learning new skills and capabilities, firms significantly create new revenue streams, become more innovative and are able to make better risks assessments (Zahra & Hayton, 2008). Because firms need to learn, only engaging in external venturing activities does not enhance new skills and capabilities. Therefore, firms need to be able to absorb new knowledge which effects the AC. The important role that knowledge and learning has in firms that are undertaking external venturing activities has been widely recognized (Jansen, Bosch, & Volberda, 2005) (Petersen, Pedersen, & Sharma, 2003) (Johanson & Vahlne, 2009). New knowledge is often disaggregated into two components, namely tacit and explicit knowledge. Tacit knowledge is perceived as intuitive, non-verbalized, and unarticulated. Knowledge is tacit because it is difficult to transfer without moving the people who have the knowledge because it is both context bound and people-embedded (Inkpen, 2008). Explicit knowledge is embedded in the organisational systems, guidelines and procedures. Therefore, explicit knowledge is not people-embedded and can be codified and communicated. The literature indicates that especially tacit knowledge contributes significantly to the increase of organisational performance (Evangelista, 2009) (Anh, Baughn, Hang, & Neupert, 2006). External venturing exposes firms to new EBE which enables them to learn the best practices in these environments. In section 2.2.2, seven knowledge areas of the EBE are analysed. Fletcher & Harris (2012) stated that, from these knowledge areas, an increasing technological and market knowledge stocks are most relevant reasons for firms to undertake external venturing activities. Furthermore, research also emphasised the importance of the internationalisation knowledge area (Johanson & Vahlne, 2009). These knowledge areas are described and whether they are country, industry, and/or organisational specific. Technological knowledge provides firms with advantages that can be used in domestic and international markets. Technological knowledge is not country specific but to each firm (Zahra, Ireland, & Hitt, 2000); Market knowledge is specific for each country and industry not for each organisation. Uncertainty and risks will arise when there is a lack of market knowledge (Johanson & Vahlne, 2009); The power of Absorptive Capacity 18

27 Internationalisation knowledge is knowledge that reflects a firms resources and its capabilities for engaging in external venturing activities (Johanson & Vahlne, 2009). Because this knowledge is concerned with knowledge for operating in international markets it is not country specific. However, it is organisational specific (Fletcher & Harris, 2012). The path dependent and tacit nature of knowledge limits the learning capabilities of firms (Volberda, Foss, & Lyles, 2010). Especially the breadth (areas of new knowledge), depth (mastery of new knowledge), and speed (speed of learning new skills and capabilities) of learning from these knowledge areas will increase when undertaking external venturing activities (Zahra, Ireland, & Hitt, 2000). when this is the case, one can consider that external venturing activities will influence the breadth, depth, and speed of learning. External Venturing and Absorptive Capacity By undertaking external venturing activities firms can learn new skills and capabilities. However, some firms do not have the requisite PAC and RAC to exploit these opportunities (Zahra, Ireland, & Hitt, 2000). According to Zahra & Hayton (2008) the AC moderates the relationship between external venturing and the profitability and revenue growth. They conclude that there is a significant positive relationship between acquisitions, alliances and corporate venture capital, the profitability, revenue growth, and the level of AC. The results are most clear when the external venturing activities are increasing familiar knowledge stocks of firms. Therefore, firms should build a stock of related knowledge within their own operations (Volberda, Foss, & Lyles, 2010). Furthermore, Zahra & Hayton (2008) argue that firms can benefit more from external venturing through successful integration and exploitation of new knowledge and capabilities. According to Lane, Salk & Lyles (2001) trust between partners and the relative AC of influences the organisational ability to understand new knowledge. Furthermore, learning structures and processes influence the ability to assimilate new knowledge and the strategy and training competences are increasing the ability to apply new knowledge. These results urge firms to develop new processes and routines to successfully deploy new knowledge and capabilities when undertaking external venturing activities. The speed that firms learn is dependent on the creation and internal transfer of knowledge (Fletcher & Harris, 2012). This will result in insights in technological, market and internationalisation knowledge in international and domestic markets. Conclusion During this section the literature insights on the influence of external venturing on AC will be analysed. Therefore, this section will give an answer to sub-research question (3) What are prevalent literature insights on the influence of external venturing on AC?. External venturing activities increases the ability of firms to learn new skills and capabilities. Firms need to absorb new knowledge before they are able to learn from it, which effects the AC. Firms are currently interested in increasing the technological and market knowledge. Furthermore, the internationalisation knowledge is considered as important. Finally, especially the breadth, depth and speed of learning from these knowledge areas will increased by undertaking external venturing activities. The literature indicates that especially tacit knowledge contributes significantly to the organisational performance. Because tacit knowledge is context bound and people-embedded one can consider that the social mechanisms and power relationships become even more important for such expanding firms. Some firms do not have the requisite PAC and RAC to exploit the opportunities that external venturing activities provide. The results of external venturing activities are most clear when firms build a stock of related knowledge within their own operations. Furthermore, other important factors are trust, the relative AC, learning structures and processes, strategy, and training. Taken the created literature insights of the AC and external venturing literature, the following RP can be tested: RP. 3: Firms that undertake external venturing activities build a stock of related knowledge and want to increase and learn from technological, market, and internationalisation knowledge. The power of Absorptive Capacity 19

28 2.4 Theoretical Absorptive Capacity Framework This section will analyse the different elements of the theoretical AC framework. By doing so an answer is given to subresearch question (4) Of which elements consists the theoretical AC framework and how can it create strategic foresights of the EBE?. First, the AC elements are elaborated on and are linked to empirical research and the general research question. Second, the different RP s are formulated. Finally, the AC elements and the different research propositions are visualised in the final theoretical AC framework. The elements of the theoretical AC framework form the basis for the empirical research. Therefore, these elements should help us answering the general research question. The general research question that we want to answer is how Aviko B.V. can organise their AC to create and act on strategic foresights of the external business environment? In order to give an answer on how Aviko B.V. can organise their AC, the empirical research will analyse the processes and routines whereby firms acquire, assimilate, create strategic foresight (transform), and make strategic decisions (exploit) from EBE knowledge. Furthermore, the theoretical AC framework is based on well-established papers of Cohen & Levinthal (1990) and Zahra & George (2002) that is used, applied, and validated by many scholars. Therefore, we assume the relationships between the knowledge areas and PAC, PAC and RAC, and RAC and the AC outcomes as significant and accepted. Finally, during the empirical research the four contingent factors and the outcomes are control variables. The final theoretical AC framework consists of three AC elements, two EBE elements, and one external venturing element. The first AC elements are the four dimensions: acquisition, assimilation, creating strategic foresights (transformation), and decision making (exploitation). The second AC element are the contingent factors: absorptive tension, power relationships, social mechanisms, and regimes of appropriability. Finally, the third AC elements are the outcomes. Based on the literature on AC the following Research Propositions have been formulated in this chapter: RP. 1A: Firms can acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and is based on prior related knowledge. RP. 1B: Firms can assimilate knowledge by standardising the analysis, processing, interpreting, and understanding of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. RP. 2A: Firms can better create strategic foresights, influenced by operational and tactical foresights, when transforming prior related and new knowledge. In addition, firms need to be knowledge driven and have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. RP. 2B: Firms can increase the quality of strategic decisions by using strategic foresights about the External Business Environment that are connected with their business opportunities. The final theoretical AC framework consists of two EBE elements. The first EBE element are the eight knowledge areas of the general and specific EBE to create opportunities or eliminate threats. In addition, the second EBE element are the internal and external information sources. Finally, the final theoretical AC framework consists of one external venturing element. Based on the literature on AC and external venturing the following RP is formulated: RP. 3: Firms that undertake external venturing activities build a stock of related knowledge and want to increase and learn from technological, market, and internationalisation knowledge. The AC elements and the different research propositions are visualised in the final theoretical AC framework in Figure 2.5. The power of Absorptive Capacity 20

29 Figure 2.5: Final Theoretical Absorptive Capacity Framework The power of Absorptive Capacity 21

30 3. Research Methodology This chapter will elaborate on the methodology used during the empirical research that will answer sub-research questions (5), (6), and (7). First, the research strategy will be described in section 3.1. In addition, this chapter will elaborate on data collection and analysis of the theoretical AC framework (section 3.2), the expert interviews (section 3.3), and the single case study (section 3.4). Finally, the limitations of this research are described in section Research Strategy To answer sub-research question (7) an exploratory single case strategy approach (Yin, 1994), also called phenomenondriven research (Eisenhardt & Graebner, 2007), is adopted. A single case is used to test the theoretical AC framework in a real life case (Vaus, 2001). This inductive research is used to build new theory from one case (Eisenhardt & Graebner, 2007) and extends theory on areas that are not addressed well and uses a process research question (Ozcan & Eisenhardt, 2009). Theory building from a single case study is a research strategy that answers how and why research questions and creates theoretical constructs, propositions, and theories from empirical evidence (Eisenhardt & Graebner, 2007). However, it can be argued that a multiple case study will provide a stronger basis for theory building (Yin, 1994). When using multiple cases comparisons between the cases can be made which gives evidence that findings are not simply idiosyncratic (Eisenhardt & Graebner, 2007) and because of more empirical evidence the theory will be more robust. To cope with this argument, prior to the single case study, expert interviews will be held which answers sub-research questions (5) and (6). The overall research strategy is visualised in Figure 3.1. Figure 3.1: Research Strategy Next, sections 3.2, and 3.3 will further elaborate on the data collection and analysis of the theoretical AC framework and expert interviews. 3.2 Theoretical AC Framework The goal of the theoretical review is to gain prevalent literature insights and answer sub-research questions (1) to (3). These insights are then used to draw conclusions, define a theoretical AC framework, and answer sub-research question (4). According to Yin (2009) an extensive theoretical review is necessary to develop a theoretical framework which is then validated and adjusted through empirical research. However, it has been argued that this approach generates limited insights because there is the risk that the research becomes a duplication of what is already known (Steenhuis & Bruijn, 2006). Therefore, besides defining a theoretical AC framework, we used the theoretical review to specify the essentials of relevant existing theories which results in the ability to select appropriate experts for the empirical research, operationalise the research propositions, and design interview protocols. 3.3 Expert Interviews This section will elaborate on the data collection (section 3.3.1) and analysis (section 3.3.2) of the expert interviews that will be used to answer sub-research questions (5) and (6). The power of Absorptive Capacity 22

31 Data Collection Expert Interviews Multiple experts of different firms active on the foodservice market are interviewed to collect new data that validates and, when necessary, extends the theoretical AC framework. In total nine interviews are held, face-to-face and by phone, with experts on AC (N=9). From the nine selected AC experts, seven experts (N=7) also have knowledge about the effect of external venturing activities on their own firm. All the experts are active on the foodservice market and the interviews are conducted in the native language of the expert by the main researcher. Besides the AC and external venturing experts, two other experts (N=2) are interviewed that validate the theoretical AC framework so that it fits the case of Aviko B.V. The experts selected to validate the theoretical AC framework are professors of Dutch universities who contributed, on an academic level, to the research field of AC. Table 3.1 gives an overview of the selected experts including the selection criteria. Table 3.1: Selected Absorptive Capacity, External venturing, and validation experts Expert: Organisation Function Expert Experts on AC Experts on External Venturing Expert 1 Sensus Business Intelligence Manager X Expert 2 Royaan Business Intelligence Manager X Expert 3 Flagship Europe Business Unit Manager X Expert 4 Suikerunie Business Analyst X Expert 5 Gulpener Commercial Director X X Expert 6 Friesland Campina Manager Business Intelligence & Strategic X Projects Expert 7 SVZ Business Intelligence Manger X Expert 8 Duynie Business Controller X X Expert 9 Unilever Food Solutions Business Intelligence Manager X Validation experts Expert 10 University Delft (TU) Assistant Professor X X Expert 11 Erasmus University (EUR) Academic Director MSc Strategic Management X X We used the following criteria to select the appropriate firms and experts: experts on AC (N=9) are selected by their ability to sustain innovations because, as elaborated in section 2.1.3, these processes and routines show many resemblances with AC. We assume that firms are able to sustain innovations when they are active on the foodservice market longer than 25 years. In addition, the selected experts should be responsible for maintaining and/or increasing the AC of the firm; experts on external venturing (N=7) are selected when the firm has experience with external venturing activities. We assume that this is the case when the firm is active on the foodservice market and did acquisitions, formed alliances, and/or corporate venture capital in domestic and international markets in the last five years; validation experts (N=2) selected to validate the theoretical AC framework are professors of Dutch universities who contributed on an academic level to the field of AC. Since most experts want to remain anonymous no personal names will be used. As shown in Table 3.1, six of the nine firms have either a function or department whose responsibility is to maintain and/or increase the AC of the firm (experts 1,2,4,6,7,9). This is defined as the Business Intelligence function/department. From the three firms who do not have a Business Intelligence department/function, the AC is kept up to standards by the mother firm (expert 3) or is incorporated within another position (experts 5 and 8). The internal validity is increased by combining two selection criteria for the AC experts: (1) the firm is able to sustain innovation because they are active on the foodservice market longer than 25 years and (2) the interviewees are responsible for maintaining and/or increasing the AC of the firm. Because experts are selected on their expertise of AC and external venturing on a foodservice or academic level, different interviews and interview protocols are designed. Therefore, we will now elaborate on the operationalisation of the research propositions for the AC and external venturing expert interviews. This operationalisation is not applicable for the validation experts because they are asked to give their opinion when presenting them with the theoretical AC framework and research propositions. Here, evidence is gathered by analysing contrasting and supporting statements about how the theoretical AC framework fits the academic literature and practice. Appendix B provides the interview protocols of the different AC, external venturing, and validation experts. The power of Absorptive Capacity 23

32 Operationalisation Research Propositions for Expert Interviews: The operationalisation of the research propositions 1A, 1B, 2A, and 2B for the AC experts is shown in Table 3.2. The interview questions for the AC experts are designed to get insights in the processes and routines of the four AC dimensions and the control variables in order to answer RP s 1A, 1B, 2A, and 2B. Every AC dimension will start with introduction questions that are used to introduce the AC dimension to the expert, as a starting point for discussion, and to analyse how important the different variables of the research propositions are. The following sources are used to collect information on the different types of AC questions: (Jansen, Bosch, & Volberda, 2005), (Tepic, Trienekens, Hoste, & Omta, 2012), (Khodaei, 2015), and (Backmann, Hoegl, & Cordery, 2015). The measurement scale used is (1) Strongly Disagree and (10) Strongly Agree. We have chosen a 10-point scale because this scale offers more variance than a for example, a 7-point Liker scale (Carifio & Perla, 2007). Hereby, we can better detect differences and can direct our semistructured questions better. After the introduction questions, in depth semi-structured interview questions will be asked that elaborate on the answers given to the introduction questions and on the processes and routines of the AC dimensions. Table 3.2: Operationalisation Research Proposition 1A, 1B, 2A, and 2B Research Proposition and Interview Questions 1. Please indicate how your firms defines AC? 2. Please indicate who is responsible for AC? RP. 1A: Firms can acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and is based on prior related knowledge. Based on the literature the next introduction questions are formulated: A. When scanning the external business environment we are especially interested in the knowledge areas: 1. Market/industry 2. Competitors 3. Customers/Consumers 4. Product 5. Suppliers 6. PESTEL 7. Supply Chain 8. Internationalisation B. We continuously scan the external business environment for critical knowledge that offers opportunities or threats for the organisation. C. Our knowledge search is directed towards our value added products. D. We actively use our experience to direct the knowledge search for critical knowledge. The next questions will be used to elaborate on the answers given to the introduction questions: 3. Please indicate how frequently the external business environment is scanned to obtain critical knowledge? 4. Please describe how critical knowledge of the external business environment is identified? 5. Please describe how critical knowledge is acquired? RP. 1B: Firms can assimilate knowledge by standardising the analysis, processing, interpreting, and understanding of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. Based on the literature the next introduction questions are formulated: E. We standardised the processes and routines that analyses the acquired knowledge. F. We have a clear division of roles and responsibilities about who does and knows what. G. We frequently have meetings where we analyse the acquired knowledge. H. We have integrate newly acquired knowledge in every day practice. I. We have the ability to capture and put knowledge into memory. The next questions will be used to elaborate on the answers given to the introduction questions: 6. Please describe how critical knowledge of the external business environment is analysed? 7. Please indicate how you divide the roles and responsibilities for AC? 8. Please indicate how you make sure that knowledge is available to the right actor at the appropriate time? How do you integrate new acquired knowledge in every day practice? 9. Please describe how newly acquired and assimilated knowledge is stored for future purposes? P. 2A: Firms can create strategic foresights, influenced by operational and tactical foresights, when transforming prior related and new knowledge. In addition, firms need to be knowledge driven and have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. Based on the literature the next introduction questions are formulated: J. Strategic foresights are created when using prior related and new knowledge. K. Strategic foresights are influenced by operational and tactical foresights. L. Formal and informal social interactions are enhanced by: Measurement Scale Open - Scale Open - - Scale Open Scale The power of Absorptive Capacity 24

33 - An organisational structure - A set of systems - An cultural infrastructure The next questions will be used to elaborate on the answers given to the introduction questions: 10. Are their formal and informal social interactions whereby knowledge is shared and discussed? 11. Do you use prior related knowledge and new knowledge create strategic foresights of the external business environment? RP. 2B: Firms can increase the quality of strategic decisions by using strategic foresights about the EBE that are connected with their business opportunities. Based on the literature the next introduction questions are formulated: M. We increase the quality of our strategic decisions by: - Using foresights of our internal capabilities - Using foresights of our external business environment N. We connect our strategic decisions with business opportunities. The next questions will be used to elaborate on the answers given to the introduction questions: 12. Please indicate how you incorporate new strategic foresights into the operations of the organisation? 13. How does AC increase the quality of strategic decisions? 14. Please indicate how you connect strategic foresights with business opportunities? 15. Please indicate how you develop the organisational competencies to better exploit knowledge? Control variables. Based on the literature the next introduction questions are formulated: O. Important contingency factors affecting the AC are: - We have a high strategic urgency or impetus for stimulating AC processes and routines? - Actors within and outside the firms affects the AC processes and routines? - Social mechanisms affects the AC processes and routines - The industry dynamic affects our ability to protect and benefit from new products and processes? P. Important goals for investing in AC are: - Protecting shareholders interest - Creating sustainable competitive advantage - Exploring activities that lead to innovativeness - Reduce of potential strategic errors - Increase the ability to learn The next questions will be used to elaborate on the answers given to the introduction questions: 16. Please describe if there are other goals for investing in AC? 17. Please describe the activities that are undertaken to accomplish these goals? Open - Scale Open Scale Open - The interview questions of the external venturing experts are operationalised in Table 3.3. Table 3.3: Operationalisation Research Proposition 3 Research Proposition and Interview Question RP. 3: Firms that undertake external venturing activities build a stock of related knowledge and want to increase and learn from technological, market, and internationalisation knowledge. 1. Please indicate what external venturing activities where undertaken? o E.g. acquisitions, alliances, corporate venture capital, and other? 2. What knowledge did you want to obtain from undertaking external venturing activities? o E.g. competitors, market/industry, customer/consumer, product, supplier, political, economic, social, technological, environmental, legal, supply chain, and internationalisation. 3. Are the new obtained skills, knowledge and/or capabilities related with existing knowledge? 4. What kind of impact did the external venturing activities have on the business intelligence of your organisation? Measurement Scale Open Data Analysis Expert Interviews: The expert interviews are used to gather information about a subject which is missing consensus (Verschuren & Doorewaard, 2010). The answers given by the experts are recorded, fully transcribed, and analysed on outlines and differences. This information is returned to the experts, where they can supplement or adjust their initial answers, for one or more rounds until consensus is achieved. By using this method, experts form a well-considered opinion and the researcher obtain knowledge about a certain phenomenon. By using multiple data sources the reliability and construct validity is increased. The interview data is presented in the text whereby connections between empirical and theory are made (Eisenhardt & Graebner, 2007). The power of Absorptive Capacity 25

34 These connections are made in two ways: first, the data will be analysed on how RP s 1A, 1B, 2A, and 2B are supported by AC experts and RP3 by experts on external venturing. As stated in section 2.4, we assume the relationships between the knowledge areas, the four AC dimensions and outcomes as significant and accepted. Therefore, the focus is not on the relationships but on processes and routines whereby the experts acquire, assimilate, transform, and exploit knowledge of the EBE. Furthermore, the interview questions are designed to answer specific concepts from the RP s. For example, interview question 3 is designed to answer the first part of RP 1A: firms can acquire knowledge by continually identifying and acquiring external knowledge.. Therefore, we divided the five research propositions into different concepts which will be analysed in construct tables. These tables are used to summarise data and indicates how the RP s are measured (Eisenhardt & Graebner, 2007). This is shown in Table 3.4. Table 3.4: Construct Tables Design Concept Code RP. 1A: Firms can acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and is based on prior related knowledge. Firms can acquire knowledge by continuously identifying and acquiring external knowledge. Firms can acquire knowledge when the identified and acquired knowledge is directed towards their value added products. Firms can acquire knowledge when the identified and acquired knowledge is based on prior related knowledge. Acq1 (Acquisition) Acq2 Acq3 RP. 1B: Firms can assimilate knowledge by standardising the analysis and processing of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. Firms can assimilate knowledge by standardising the processing and analysis processes and routines of acquired knowledge. Firms can better assimilate knowledge by communicating the internal knowledge responsibilities Firms can better assimilate knowledge by arranging meetings. Firms can better assimilate knowledge by developing cultural mechanisms. Ass1 (Assimilation) RP. 2A: Firms can create strategic foresights, influenced by operational and tactical foresights, when transforming prior related and new knowledge. In addition, firms need to be knowledge driven and have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. Strategic foresights are influenced by operational and tactical foresights. Firms can create strategic foresights when transforming prior related and new knowledge. Firms can better create strategic foresights when they have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. Ass2 Ass3 Ass4 Tra1 (Transformation) Tra2 Tra3 RP. 2B: Firms can increase the quality of strategic decisions by using strategic foresights about their internal capabilities and External Business Environment that are connected with their business opportunities. Firms can increase the quality of strategic decisions when using strategic foresights about their internal capabilities and EBE. Firms can increase the quality of strategic decisions when the strategic foresights are connected with their business opportunities. Exp1 (Exploitation) RP. 3: Firms that undertake external venturing activities build a stock of related knowledge and want to increase and learn from technological, market, and internationalisation knowledge. Firms that undertake external venturing activities need a stock of related knowledge. Ext1 (External Venturing) Firms that undertake external venturing activities want to increase and learn from technological knowledge. Ext2 Firms that undertake external venturing activities want to increase and learn from market knowledge. Ext3 Firms that undertake external venturing activities want to increase and learn from internationalisation knowledge. Ext4 Second, the data will be analysed on insights on the processes and routines whereby the experts acquire, assimilate, transform, and exploit knowledge of the EBE. Finally, the conclusion will describe how RP s 1A, 1B, 2A, and 2B are supported by the expert interviews on AC and RP 3 by expert interviews on external venturing. Hereby we are able to answer sub-research questions (5) and (6). In addition, validation experts are interviewed to validate the theoretical AC framework, so make sure it fits the case of Aviko B.V. After incorporating the recommendations of the validation experts into the theoretical AC framework, the validated final theoretical AC framework is visualised. Next, the final theoretical AC framework is tested, by using a single case study, in a real life case. Therefore, section 3.4 will further elaborate on the single case study design. Exp2 The power of Absorptive Capacity 26

35 3.4 Single Case Study Design A single case study describes a phenomenon extensively (Siggelkow, 2007) by thoroughly examining a case (Verschuren & Doorewaard, 2010). However, with a descriptive single case study it is difficult to add significant scientific value; so one needs a case that provides the researcher with unique new insights about a phenomenon (Siggelkow, 2007). We selected Aviko B.V. as case which is used to analyse what knowledge of the EBE is important for Aviko B.V. in order to deploy AC in their commercial operations. This section will elaborate on the case selection and description (section 3.2.1), the unit of analysis and data collection (section 3.2.2), and data analysis (section 3.2.3). Case Selection and Description Even though the theoretical sampling of a single case study is straightforward (Eisenhardt & Graebner, 2007), selecting Aviko B.V. as a case is well considered. The case of Aviko B.V. is selected because of the important access to relevant data (Yin, 2009). Firms are protective towards their AC strategies, especially when it creates sustainable competitive advantage and/or leads to innovative products. New insights in the process view of AC is created because Aviko B.V. gives us the opportunity to analyse their AC processes and routines and test the theoretical AC framework. One can argue that Aviko B.V. is not an appropriate case because, as stated in section 1.1.2, the acquisition of knowledge is fragmented and not standardised by Aviko B.V. For this reasons, Aviko B.V. want to invest in their AC, which indicates that the AC is not optimal yet. However, testing the theoretical AC framework on a firm that gives us detailed insights in their AC processes and routines is considered to be more valuable than selecting one or more firms with a high AC that provides merely general insights in their AC processes and routines. In addition, before the single case study, this research collects data from eleven AC experts, including two validation experts. In this manner, the author is able to create insights from both sides of the story. Aviko B.V. is a potato processing firm, that is producing and selling chilled and frozen potato products internationally. Aviko B.V. is primarily active on the foodservice market and has the second biggest market share in Europe (circa 22 percent) and fourth worldwide (circa 8 percent) (Aviko B.V., 2016). Aviko B.V. has twelve factories in Europe and two outside Europe. The headquarters for the Benelux, Germany, and International Sales is located in Steenderen, The Netherlands. Here, the strategic decisions on, for example, external venturing, investments, and operations are made. Despite the successes that different scholars have with using a (single) case study, this research design it is not free of criticism. Often the lack of systematic data handing, time consuming, an unreadable final product, mass data, credibility, lack of external validity and replication, and lack of control of the independent and dependent variable are mentioned (Yin, 1994) (Eisenhardt & Graebner, 2007) (Runyan, 1982) (Hyett, Kenny, & Dickson-Swift, 2014). Appendix C gives an overview of the criticisms and the advised and applied strategies to mitigate the risks. We adapted our research accordingly in the following manner. Unit of Analysis and Data Collection Single Case Study Research questions indicate the unit of analysis, be it individuals, groups, or a firm (Benbasat, Goldstein, & Mead, 1987). The objective of the single case study is to determine what knowledge of the EBE is important for Aviko B.V. in order to deploy AC in their commercial operations. Therefore, our unit of analysis are the employees and managers of Aviko B.V. that have the ability and/or are responsible for creating and acting on strategic foresights. The employees and managers of Aviko B.V. serve as an individual analytic unit (Eisenhardt & Graebner, 2007). An overview of the selected interviewees (N=11), subdivided per interview round, are shown in Table 3.5. Table 3.5: Single Case Interviews Aviko B.V. Interviewee Firm Function Interviewee Interview Date Duration First Round Case Interviews Interviewee 1.1 Aviko B.V. Senior Channel Marketer 17 th of May :32:17 Interviewee 2.1 Aviko B.V. Manager Strategic Development 17 th of May :54 Interviewee 3.1 Aviko B.V. Dep. Managing Director Sales 18 th of May :12:17 Interviewee 4.1 Aviko B.V. Foodservice Manager Benelux 18 th of May :41 Interviewee 5.1 Aviko B.V. Marketing Manager 19 th of May :40 Interviewee 6.1 Aviko B.V. Export Manager Overseas 19 th of May :10:40 Interviewee 7.1 Aviko B.V. Senior Channel Marketer 20 th of May :57 The power of Absorptive Capacity 27

36 Second Round Case Interviews Interviewee 1.2 Aviko B.V. Dep. Managing Director Sales 25 th of May :17 Interviewee 2.2 Aviko B.V. Manager Strategic Development 26 th of May :54 Interviewee 3.2 Aviko B.V. Marketing Manager 27 th of May :40 Interviewee 4.2 Aviko B.V. Business Development Manager 27 th of May :45 As shown in Table 3.5, the data collection of the single case study consists of eleven case interviews divided into two rounds. The first round case interview will determine the context of the interviewee and assess the critical knowledge of the eight knowledge areas. We defined knowledge as critical when strategic foresights of the EBE are based on it. The critical knowledge of the EBE can create strategic foresights directly. However, strategic foresights can also be influenced by operational and tactical foresights. The second round case interviews will validate and prioritise the results of the first round case interview and internal/external information sources are assessed. The selected interviewees are employees and managers of Aviko B.V. that have the ability and/or responsibility to create and act on strategic foresights. These interviewees are selected because of their knowledge about the EBE of the foodservice market from different geographic areas, product groups, market segments, and customer types which limits the bias (Eisenhardt & Graebner, 2007). The case interviews were conducted face-to-face and took approximately 1 hour. All interviewees received the interview protocol on forehand so that they can prepare the interview which is conducted in the native language of the interviewees by the main researcher. Appendix D provides the operationalisation for the single case study. The interview protocol of both rounds of interviews is shown in Appendices E and F. Data Analysis Single Case Study The data collection and analysis of the single case study are intertwined. First, the data analysis starts after that the first round case interviews (N=7) are conducted. To increase the verifiability, the recorded case interviews are fully transcribed and systematically analysed on outlines and differences. The data will be analysed based on the geographical responsibilities of the case interviews. Interviewees 2.1, 3.1, and 5.1 are, on a corporate level, responsible for the global strategy of Aviko B.V. Interviewees 1.1 (Germany and Austria), 4.1 (Benelux), 6.1 (South and Middle East and Africa) and 7.1 (United Kingdom) are responsible for different country strategies of Aviko B.V. This is important because this effects what knowledge is defined as critical for Aviko B.V. This is shown in Table 3.6 that, for example, shows that from a global point of view the mission and vision of the competitors is critical and from a country point of view the product introductions. Table 3.6: Analysis first round case interviews (example) Knowledge area # Global Country Competitor 1. Mission and Vision 2. Product introductions 3. etcetera Interviewees 2.1, 3.1, and Interviewees 1.1, 6.1, and 7.1 Market/ Industry Etcetera. Etcetera Second, after that the analysis of the first round of case interviews the second round of case interviews will be conducted (N=4). Here, all the interviewees (2.1 to 2.4) are, on a corporate level, responsible for the global strategy of Aviko B.V. The second round case interviews validated the results of the first round case interviews. After that consensus was achieved the prioritisation within the knowledge areas and the internal/external information sources were assessed. This is shown in Table 3.7. Table 3.7: analysis second round case interviews (example) Priority Competitors Focus Internal/ External Information Sources Competitor Priority 1 McCain and Lamb Western Market Position/ Sizes Euromonitor, sales. Priority 2 Farm Frites Competitive Profile Etcetera Etcetera The power of Absorptive Capacity 28

37 Finally, based on the theoretical AC framework, analysis of the expert interviews and single case interviews, the final AC framework for Aviko B.V. is visualised and an answer will be given to sub-research question (7). This results in recommendations on how Aviko B.V. can organise their AC to create and act on strategic foresights of the EBE. 3.5 Limitations The methodology chosen limits the research results. The main limitations of this research are caused by the data collection methods of the empirical part: (1) one expert, with the exception of the validation experts, of AC and external venturing, is selected from each organisation, (2) the data generated from expert and case interviews are perceptual and subjective, (3) the data is collected at one moment in time, (4) Aviko B.V. related knowledge is the main basis for the analysis and final conclusions, and (5) the choice of a 10-point scale. (1) One can argue that using one expert for each firm to analyse the AC processes and routines and external venturing of the foodservice is a limitation. However, the information obtained from the experts are generalised to foodservice and not to specific firms. In addition, the experts are selected on their experiences of the foodservice market and are highly knowledgeable. Finally, the semi-structured interview questions are based on well-established papers of Cohen & Levinthal (1990) and Zahra & George (2002). (2) Although interviews are highly efficient to gather rich empirical results it has limitations. Limitations often mentioned are that interviewees have the tendency to give social desirable answers, try to be consistent in their answers, perceptions and mood drive the answers given, and that information is deliberately ignored (Podsakoff, Mackenzie, Lee, & Podsakoff, 2003) (Podsakoff, Mackenzie, & Podsakoff, 2012). However, it is not possible to overcome this limitation during this research. (3) Because AC is a dynamic capability Aviko B.V. needs to change and reconfigure its resources over time. Preferably, we would like to investigate the long-term effect of implementing the corporate AC framework to verify our findings and the corporate AC framework. We proposed a set of four processes and six routines to deploy the AC into the commercial operations of Aviko B.V. Unfortunately, we are not able to see the results from implementing the processes and routines. (4) Other researchers could benefit from the theoretical AC framework and use it as reference and/or starting point for their research. However, because Aviko B.V. related information is incorporated in the corporate AC framework, one needs be careful to generalise the final findings to other firms and/or industries. However, we developed four processes and six routines who are applicable for different markets. Therefore, we are of the opinion that only some findings are firm and/or industry specific. (5) Finally, we have chosen a 10-point scale for our introduction questions because this scale offers more variance than a for example, a 7-point Liker scale. Unfortunately, the results did not show the variance we expected by using this scale. However, we used the introduction questions as a starting point for discussion and we did not use the results for analysis. Therefore, the impact was limited. The power of Absorptive Capacity 29

38 4. Expert Interviews This chapter will elaborate on the empirical results of the expert interviews (N=11) and covers part III of the research framework. The goal of this chapter is to gain a deeper understanding of the theoretical AC framework, so that it can be made suitable for the studied case Aviko B.V. First, the results of the expert interviews will be discussed (section 4.1). Second, the analysis of the expert results will be central (section 4.2). 4.1 Data: Expert interviews Eleven experts are interviewed to collect data that validates and/or extends the theoretical AC framework. First, two validation experts (N=2) are interviewed to validate the theoretical AC framework. Second, nine interviews are held with experts on AC (N=9). Finally, seven of the nine AC experts are interviewed because they also brought in knowledge about the effect of external venturing on the AC of their own firm (N=7). This section elaborates on the results of the interviews with the validation (section 4.1.1), AC (section 4.1.2), and external venturing experts (section 4.1.3). Appendix G provides the coded transcripts, including the legend of the coding system, of the expert interviews. In addition, Appendix H provides the full empirical results including introduction questions, construct tables, and expert statements which will be referred to in this section. Validation Experts When presenting the theoretical AC framework to both validation experts, they agreed in general on the eight knowledge areas and AC dimensions. However, in total three recommendations were made concerning the theoretical AC framework by both experts which will be discussed next. First, concerning the contingency factors (3), it was first argued by one expert that the absorptive tension is incorporated in the first AC dimension (e11); so the advice was to maintain the concept but incorporate this inside the first AC dimension. However, the author argues that, even before any knowledge is acquired, firms determine what knowledge areas requires the most attention concerning the eight knowledge areas. By doing so, the focus will be on certain knowledge areas and to a lesser extent on others. When the prioritisation is determined this is further specified within the acquisition dimension. For example, it is not possible to acquire all the knowledge for all the competitors. The author does agree with the experts that not differentiating strategic, tactical, and operational absorptive tension will simplify the model. To conclude, this research will not differentiate strategic, tactical, and operational absorptive tension. However, the concept will not be incorporated in the first AC dimension. Second, both experts stated that the regimes of appropriability has minimal effect on the relationship between the knowledge areas and the first AC dimension. However, the author agrees on the literature of Cohen & Levinthal (1990) that when there is a low regime of appropriability firms can chose not to invest and acquire knowledge of the EBE. Therefore, the regimes of appropriability also has an effect on the relationship between the knowledge areas and acquiring knowledge. To conclude, no adjustments will be made in the theoretical AC framework concerning the regimes of appropriability. Finally, the empirical results indicate that many other factors affects the AC of firms. In particular the contingent factor power relationships, may make the model to complicated (e11). Therefore, the author decided to simplify the theoretical AC model accordingly. The validated theoretical AC framework concluded upon is visualised in Figure 4.1. Figure 4.1: Validated Theoretical Absorptive Capacity Framework The power of Absorptive Capacity 30

39 When presenting the validation experts with the research propositions, it was first advised to add the word better to research propositions 1A, 1B, and 2A (e10). Firms can also acquire knowledge when they are not continuously identifying and acquiring external knowledge. Nevertheless, firms are expected to be more successful when firms acquire knowledge continuously. Second, it was stated that a primary focus on the firms value added products, may come at a cost regarding their innovation capacity (e11). Accordingly, the author decided to adapt research proposition 1A as follows: RP. 1A: Firms can better acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and new product innovation and is based on prior related knowledge. Both validation experts agreed on the elements of research proposition 1B. However, both experts stated that research proposition 1B consists of too many variables. In addition, it was stated that standardising the understanding of knowledge is unlikely (e10). The author agreed on this and adapted research proposition 1B accordingly: RP. 1B: Firms can better assimilate knowledge by standardising the processing and analysis processes and routines of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. Regarding research proposition 2A one expert argued that one should not differentiate strategic, tactical, and operational foresights (e11): operational and tactical foresights can also impact the corporate strategy of a firm. In addition, it is difficult to define when foresights are operational, tactical, or strategic. The author agrees that operational and tactical foresights can have an impact on the corporate strategy. Thus during the expert interviews we do not differentiate strategic, tactical, and operational foresights. However, the differentiation between these foresights suggests that specific knowledge can be used simultaneously by different departments for operational, tactical, and/or strategic purposes and create foresights on these levels (see section 2.1.2). So, research proposition 2A implies that it is important to make the assimilated knowledge available for the different departments. Therefore, research proposition 2A is not adapted. Both experts agreed with research proposition 3, on knowledge gathering. However, it was argued by one expert that firms need a stock of related knowledge instead of creating a stock of related knowledge before undertaking external venturing activities (e11). When there is no such stock of related knowledge, firms are not able to learn from the newly acquired knowledge. Therefore, research proposition 3 is adapted to: RP. 3: Firms that undertake external venturing activities need a stock of related knowledge and want to increase and learn from new technological, market, and internationalisation knowledge. Absorptive Capacity Experts This section will present the empirical results of the nine experts that have knowledge about both AC and the foodservice market. First, the results based on the construct tables will be presented (see section 3.3.2). Subsequently, based on the answers given to the semi-structured interview questions, the processes and routines whereby the nine experts acquire, assimilate, transform, and exploit knowledge will be presented in Tables We will distinct processes with routines, with the use of the definitions as presented in section The full empirical results are presented in Appendix H. As shown in Table 3.1, six of the nine firms have either a function or department whose responsibility is to maintain and/or increase the AC of the firm. From the three firms where this is not the case, the AC is kept up to standards by the mother firm (expert 3; statement 1) (hereafter, e3; s1 ) or is incorporated within another position (e5,8). When firms want to maintain and/or increase their AC it requires focus (e8). In addition, when AC receives priority and no one is primary focussing on the AC process and organisation it will take too long before these are organised (e8; s3). Therefore, it is mentioned by the experts that it is possible to make an individual or department responsible for the organisation of the AC processes and routines (e6; s2). The function or department responsible for maintaining and/or increasing the AC of the firm is defined as Business Intelligence (hereafter, BI ). The empirical results indicate that when the absorptive tension is not department specific, BI can better be placed outside individual departments to keep the knowledge acquisition flexible (e6,11; s7-9) The power of Absorptive Capacity 31

40 The experts perceive that for the foodservice market there are four out of eight critical areas of knowledge for their commercial operations, namely: (1) market/industry, (2) competitors, (3) customers/consumers, and (4) products. However, the results shows differences between the nine firms and the knowledge areas they perceive as critical. Because of these differences, it is argued by the author that, dependent on their absorptive tension, firms need to determine which of the four knowledge areas requires the most attention. Determining what knowledge areas requires the most attention is seen as the first process when maintaining and/or increasing AC (process 1). The results concerning each of the four AC dimensions are next to be presented. Acquisition: The construct tables (Acq1 Acq3), which are the results of the semi-structured interview questions 3 to 5, are next to be discussed. First, construct table Acq1 shows that 6 of the 9 firms (hereafter, (6/9) ) continuously identifying external knowledge from different internal and external information sources. However, the results do not indicate that knowledge is also acquired from these sources on a continuous basis. Second, construct table Acq2 shows that (5/9) experts mentioned that they acquire knowledge that is directed towards their value added products and new product innovations. Finally, construct table Acq3 show that (5/9) experts acquire knowledge that is based on the prior related knowledge of the firm. In addition, the results of construct table Acq3 show that firms need to be able, besides focusing on their prior related knowledge, to identify new knowledge. When primarily focussing on their prior related knowledge, firms run the risk that strategic foresights will be rejected. Based on the answers given to the semi-structured interview questions the experts mentioned four processes and routines whereby they acquire knowledge. An overview of the processes and routines 2 to 5 are presented in Table 4.1. Table 4.1: Processes and Routines Acquisition Dimension Processes and Routines Process 2. Determine, based on process 1, what knowledge to focus on within the four knowledge areas based on the knowledge profiles; planning; or the strategy of the department(s) and/or firm. Process 3. Determine deliverables (e.g. competitors profiles) and organise internal and external information sources. Statements e4,7; s13,18 e6-7; s12,14 e4,7; s15-16 e6; s17 e5-9,1,5,8; s18-19,23-24,26,28,32 Process 4. Develop IT tools whereby knowledge can be identified and/or acquired by manually identifying and/or acquiring knowledge from internal and external information sources; and/ or by identifying and/or acquiring knowledge from internal and external information sources via an IT system. Routine 5. Acquire critical knowledge by Identifying and acquiring market/industry and customer/consumer knowledge on a continuous basis; and identifying competitors and products knowledge on a continuous basis. e6-7,9; s18,28,29,31 e1-5,7-8 e6,9 e5,7; s25-27 e6; s30 Assimilation: After that critical knowledge is acquired firms need to assimilate (process and analyse) this knowledge. Often the processes and routines whereby knowledge is processed and analysed are intertwined. It was mentioned by the experts that the owner of the acquired knowledge needs also be the one processing it (e4,8; s35-38). When these to routines are separated (routine 5 and 6), it will be more difficult to analyse the processed knowledge (routine 7). Furthermore, it was also mentioned by the experts that knowledge need to be processed immediately and that the knowledge used in the analytical environment needs to be kept separate from the knowledge in the processing system (e9; s58). The construct tables (Ass1 Ass4), which show the results of the answers given to the semi-structured interview questions 6 to 9, are next to be discussed. First, assimilation construct table Ass1 indicate that (4/9) firms assimilate knowledge by standardising both assimilation processes and routines. However, (3/9) firms state that that not all the processes and routines whereby firms analyse knowledge can be standardised. Second, construct table Ass2 shows that (4/9) firms communicate the internal knowledge responsibilities in order to better assimilate knowledge. The power of Absorptive Capacity 32

41 Third, construct table Ass3 show that (6/9) firms integrate the assimilated knowledge into existing meetings and not in meetings with the sole purpose of analysing knowledge. Finally, the results of construct table Ass4 indicate that firms do not develop a cultural mechanism to integrate the acquired knowledge in every practice and that firms do not need the ability to archive knowledge. However, the results show that the acquired knowledge needs to be processed immediately. This is defined as integrating the acquired knowledge in every day practice and considered as relevant by the author. The experts mentioned three routines (6 to 8) whereby the acquired knowledge is assimilated. An overview of these routines is presented in Table 4.2. Table 4.2: Processes and Routines Assimilation Dimension Processes and Routines Routine 6. Process the acquired knowledge into excel and/or PowerPoint; or a SQL database. Routine 7. Analyse knowledge by connecting different information sources via the BI department; informal and formal meetings; and/ or via an IT dashboard. Routine 8. Disperse unprocessed, processed, and analysed knowledge via Newsletters; / telephone; and/or IT dashboard. Statements e1-5, 7-8; s38-43 e6,9; s45-46 e2,9; s56,59 e2,6; s56,64 e6,8; s60-62 e1; s63 e8,9; s59,66 e6; s64 Transformation: Firms can realise a high PAC when the quality of the acquired and assimilated knowledge is high. Next, this knowledge can be transformed into operational, tactical, and strategic foresights. It is mentioned by validation expert 11 that the PAC is often the bottleneck of firms and the RAC is often better embedded in their commercial operations. The results given to the semi-structured interview questions 10 and 11 which are visualised in construct tables (Tra1 Tra3) are next to be discussed. First, construct table Tra1 shows that only (2/9) respondent confirmed that the strategic foresights are influenced by operational and tactical foresights. However, the author agrees on the statement done by expert 4 that Strategic decision are made for future purposes. Operational changes can also influence the strategic decisions made (Tra1). In addition, in section we argued based on literature that specific knowledge can be used simultaneously by different departments for operational, tactical, and/or strategic purposes and create foresights on these levels. This is perceived as important by the author when maintaining and/or increasing the AC of the firm. Second, based on construct table Tra2 it has been concluded that (6/9) experts use prior related and new knowledge when creating foresights. Finally, (7/9) firms perceive the cultural infrastructure as important in enabling formal and informal social interactions. Based on Tra2 it can be concluded that formal and informal social interactions are enhanced by an organisational structure, set of IT systems, and cultural infrastructure. However, an installed set of IT systems and a high level of autonomy can also diminishes the frequency of the required formal and informal social interactions. Table 4.3 visualises routine 9, mentioned by the experts, used to transform knowledge. Table 4.3: Processes and Routines Transformation Dimension Processes and Routines Routine 9. Firms transform knowledge and create strategic foresights by combining existing and newly acquired and assimilated knowledge by individual actors; and/or via formal and informal social interactions. Statements e4,6; s77, 79 e2,4-7,9; s75-82 The power of Absorptive Capacity 33

42 Exploitation: Firms must be able to exploit the create foresights before a sustainable competitive advantage can be created. The answers given to the semi-structured questions 12 to 15 is visualised in construct tables (Exp1 Exp2). Construct table Exp1 indicate that (4/9) firms increase the quality of their strategic decisions by using foresights of their internal capabilities and (3/9) firms use foresights of the EBE. In addition, construct table Exp2 show that (3/9) firms connect their strategic decisions with business and market opportunities. Table 4.4 gives an overview of routines 10 used by the experts to exploit knowledge. Table 4.4: Processes and Routines Exploitation Dimension Processes and Routines Routine 10. Increase the strategic decision making process by using foresights of the organisational internal capabilities and EBE and connect these with business opportunities; and/or with market opportunities. Statements e9; s75 e2,4,9; s75-77 External Venturing Experts From the nine AC experts seven brought in knowledge about the effect of external venturing on AC on their own firm. This section will elaborate on the empirical results of these external venturing experts. The effect that external venturing activities have on the AC of firms is versatile. This is, for example, dependent on the type of external venturing activity and organisational capabilities. On the basis of construct table (Ext1 Ext 4) it is concluded that firms need a stock of related knowledge before undertaking external venturing activities and that firms want to increase and learn from technological, market, and internationalisation knowledge. However, just as with the knowledge areas addressed by the AC experts the importance of these three knowledge areas can vary by firm. External venturing can be a source and an application area of knowledge. A high AC contributes to and plays an important role in the potential external venturing activities of the firm (e4; s87). When a high AC is achieved, BI can provide knowledge on potential firms that, for example, can be acquired. Furthermore, firms with a high AC can have a lot of prior related knowledge. This prior related knowledge can support the processes and routines that firms use when undertaking external venturing activities. In contrast, external venturing activities can also be a new information source for all parties involved (e4; s88). This was not addressed by the literature. Apart from this, external venturing activities effects the what knowledge areas requires the most attention when maintaining and/or increasing AC (see section 4.1.2). Here, besides market/industry, competitor, customer/consumer, and product knowledge, other knowledge areas can become important (e4,6,9; s89-91). Therefore, it is possible to have a BI function or department in order to maintain and/or increase the AC of a firm (e2; s92). Finally, external venturing can affect the information sources used by the firm (e6; s93). 4.2 Analysis The empirical results of the expert interviews will be analysed by relating them to the five research propositions. The empirical results will also be analysed for insights on the processes and routines whereby experts acquire, assimilate, transform, and exploit knowledge of the EBE. By doing so, this section will give an answer to sub-research question: (5) Which processes and routines do firms, active on the foodservice market, use to deploy AC in their commercial operations? (section 4.2.1) and (6) What are the effects of external venturing on the AC of firms active on the foodservice market? (section 4.2.2). Absorptive Capacity and External Business Environment This section will analyse the results of the AC experts (N=9). The results show that it is possible to make an individual or department responsible for maintaining and/or increasing the AC of the firm. Second, most of the PAC processes (2 to 4) and routines (5 and 6) can be standardised and executed on a continuous basis. On the other hand, most of the routines whereby knowledge is analysed, transformed, and exploited (7 to 10) cannot be standardised. Finally, the actors who acquire critical knowledge needs also be the one processing this knowledge. Therefore, the author argues that processes 2 to 4 and routines 5 and 6 can best be executed by the BI department on a continuous basis and that the routines 7 to 10 is done by the BI and/or other departments. The power of Absorptive Capacity 34

43 There are four knowledge areas that are perceived as the most critical for the foodservice market. This implies that firms, active on the foodservice market, need to mainly focus on these four knowledge areas. However, because this varies for every firm, the other four knowledge areas: (5) supplier, (6) PESTEL, (7) supply chain, and (8) internationalisation needs to be addressed. What knowledge areas firms focus on is determined by their absorptive tension even before any knowledge is identified and acquired. In addition, it is argued by the author that BI is not solely responsible for determining what critical knowledge areas the firm need to focus on. Finally, it was just argued that the BI is responsible for PAC processes 2 to 4 and routines 5 and 6. The author concludes that firms determine their critical knowledge areas based on the absorptive tension (process 1). Subsequently, firms determine what specific knowledge to focus on (e.g. which competitors, countries, product market combinations, etcetera), which is incorporated within the acquisition dimension (process 2). This supports the claim of the author that the absorptive tension is not incorporated in the acquisition dimension (see section 4.1.1). Next, the results concerning the four AC dimensions will be analysed. Acquisition: RP. 1A: Firms can better acquire knowledge by continuously identifying and acquiring external knowledge that is directed towards their value added products and new product innovation and is based on prior related knowledge. Based on the results it is concluded that research proposition 1A is partly verified; firms can better acquire knowledge by continuously identifying external knowledge that is directed towards their value added products and new product innovation and is based on prior related and new knowledge. It is not confirmed that firms continuously acquire external knowledge from the EBE. Best practices of the experts learned that firms use three processes (processes 2 to 4) and one routines (routine 5) to acquire knowledge and deploy the PAC in their commercial operations. First, because it is not possible to acquire all the knowledge of the four knowledge areas, firms need to determine, based on process 1, what knowledge to focus on (process 2). Processes 1 and 2 causes that when knowledge, from other knowledge areas than (1) market/industry, (2) competitors, (3) customers/consumers, and (4) products, is perceived as critical this can be incorporated on an ad hoc basis. The author argues that firms need to determine what knowledge to focus on based on the strategy of the firm. Second, firms determine the deliverables (e.g. competitors profiles) and organise the internal (E.g. Sales) and external (e.g. News publications) information sources that will be used for acquiring the critical knowledge (process 3). Third, firms need to develop IT tools whereby critical knowledge can be identified and/or acquired (process 4). It is argued by the author that firms should, when possible, use an IT system to identify and acquire knowledge. An IT system saves time and the BI department needs to rely less on internal actors, who will typically push forwards interpreted and/or adapted knowledge. Finally, firms can standardise the routine 5 whereby firms both identify and acquire (1) market/industry and (3) customer/consumer knowledge. Firms can only standardise the routines whereby knowledge of competitors (1) and products (4) is identified. However, when firms do acquire competitor and product knowledge it needs to be processed by using the same steps (routine 5). Therefore, no further distinction between the knowledge areas will be made during the other three AC dimensions. Assimilation RP. 1B: Firms can better assimilate knowledge by standardising the processing and analysis processes and routines of acquired knowledge. In addition, firms need to communicate the internal knowledge responsibilities, arrange meetings, and develop related cultural mechanisms. Based on the results is concluded that research proposition 1B is partly verified; firms can better assimilate knowledge by standardising the processes and routines whereby knowledge is processed. Refuted is that firms can standardise the processes and routines whereby knowledge is analysed. Firms, only standardise certain analysis processes and routines and need to communicate the internal knowledge responsibilities and assimilate knowledge in existing meetings. It is argued by the author that processes 2 to 4 and routines 5 and 6 contribute to building a knowledge stock within a firm. Once these processes and routines are standardised, firms can analyse (routine 7) the processed knowledge when preferred. The power of Absorptive Capacity 35

44 Three routines (routines 6 to 8) were found whereby firms can assimilate knowledge and deploy PAC in their commercial operations. First, firms need to park or preferably fully process the acquired knowledge (routine 6). This was also concluded based on research proposition 1B. Furthermore, this is in line with the literature on sustaining innovation (see section 2.1.3) where we stated that firms can better assimilate knowledge by standardising the routines whereby the acquired knowledge is processed. Dependent on, for example, size of the firm, type of knowledge, financial budget, and organisational capabilities firms can prefer Excel, PowerPoint, and/or a SQL database to process knowledge. Second, firms connect internal with external information sources. By doing so, firms analyse the opportunities and threats certain market trends offers and the role that the firm can play in relation with the consumer preferences (routine 7). By separating the processed knowledge from the analytical environment knowledge the BI department provides the different departments with processed knowledge which they can use for specific analyses on operational, tactical, and strategic level. By organising the analyses processes and routines of the processed knowledge in this manor, firms are to a lesser extend dependent on the cultural infrastructure which was perceived as important for maintaining and/or increasing the AC of firms. Finally, firms can disperse unprocessed, processed, and analysed knowledge to different actors (routine 8). It is argued in the acquisition dimension that firms need to determine what knowledge to focus on based on the strategy of the firm. When firms disperse this knowledge they translate their activities across time. Hereby, the present and future efforts coordinate with their past (see section 2.1.3). Transformation RP. 2A: Firms can better create strategic foresights, influenced by operational and tactical foresights, when transforming prior related and new knowledge. In addition, firms need to have a structure, set of systems, and a cultural infrastructure that enables formal and informal social interactions. Based on the results is concluded that research proposition 2A is verified. Because strategic foresights are influenced by operational and tactical foresights it is important that knowledge is made available for different departments to create foresights. Firms can create operational, tactical, and strategic foresights by individual actors and/or via formal and informal meetings (routine 9). Foresights are created via individual actors and different meetings because every actor and department has their own (knowledge) area of expertise and interpret the same knowledge differently. It is argued by the author that firms can use different routines when creating strategic foresights: (1) formal meetings will create strategic foresights on the basis of standard analyses and (2) individual actors and/or informal meetings will create strategic foresights on the basis of specific analyses (see also assimilating knowledge). When creating strategic foresights, prior related and new knowledge will be combined consisting of unprocessed, processed, and analysed knowledge. Here, it can be argued that once firms base their AC on their strategy (process 2) critical knowledge, that potentially could affect the strategy of the firm, is already been acquired and assimilated. Therefore, firms can determine missing knowledge more quickly than when the process 2 would be based on the knowledge profiles or planning. In addition, also the quality of the strategic foresights and the pace whereby the strategic foresights will be created will be higher. Because strategic foresights are created when linking up prior related and new knowledge, firms need a system whereby the prior related knowledge is archived (e6; s68). When knowledge is not archived and employees leave the firms this can go at the expense of the firms prior related knowledge. When creating strategic foresights on the basis of the analysed knowledge it is important that trends in the knowledge are discovered. This is accomplished when employees are able to use analogical thinking (see section 2.1.3). Exploitation RP. 2B: Firms can increase the quality of strategic decisions by using strategic foresights about the External Business Environment that are connected with their business opportunities. Based on the results it is concluded that research proposition 2B is verified. Firms can increase the quality of strategic decisions by incorporating the strategic foresights into their commercial operations. Firms can incorporate strategic foresights by refining, extending, and leveraging existing competencies (see section 2.1.1), by connecting strategic foresights with (1) their business opportunities and (2) market opportunities (routine 10). In both cases, the speed whereby firms capitalise on the strategic foresights is crucial. This is in line with the literature (see section 2.1.3). It is argued by the author that the speed and quality of the strategic decision making process are improved by successfully using processes 1 to 4 and routines 5 to 9. The power of Absorptive Capacity 36

45 External Venturing This section will analyse the results of the external venturing experts (N=7). RP. 3: Firms that undertake external venturing activities need a stock of related knowledge and want to increase and learn from new technological, market, and internationalisation knowledge. On the basis of the results, research proposition 3, is verified. The second purpose of this research (see section 1.1.2) is to analyse the influence of external venturing on AC. This implies that external venturing is the independent and AC the dependent variable. Interestingly, however, the results show also a reverse effect: AC has an longitudinal effect on external venturing. Firms with a high AC will create higher quality strategic foresights when identifying and selecting potential external venturing activities for the firm. So, firms with a high AC can create strategic foresights and make strategic decisions on which external venturing activities to and not to undertake than firms with a low AC. In addition, firms with a high AC can supply unprocessed, processed, and analysed knowledge used for other purposes within the acquisition process. Next, external venturing can be a source for new knowledge. The results of external venturing activities are most clear when firms have a stock of related knowledge within their own operations (see section 2.3.3). Otherwise, it will be difficult to increase and learn from technological, market, and internationalisation knowledge. This chapter created insights in the processes and routines whereby firms, active on the foodservice market, can acquire, assimilate, transform, and exploit knowledge of the EBE. The development of the AC processes is path dependent and need to be continuously developed (see section 2.1.3). Because of the path dependent character of AC the single case study (see chapter 5) will elaborate on the first three processes (1 to 3). The power of Absorptive Capacity 37

46 5. Single Case Study This chapter will elaborate on the results of the single case study. By doing so, an answer will be formulated to subresearch question (7): What knowledge of the EBE is important for Aviko B.V. in order to deploy their AC in their commercial operations?. Aviko B.V. uses knowledge to create strategic foresights in order to support their strategic decision making. However, the acquisition, assimilation, transformation, and exploitation of knowledge is fragmented and the processes and routines are not standardised (see section 1.1.2). As a result, different internal actors acquire the same knowledge from different information sources for different purposes. Because this is time consuming, Aviko B.V. wants to increase their AC. This single case study will elaborate on the processes 1 to 3 (see section 4.1.2). Furthermore, the single case strategy validates the results of the expert interviews and contributes to the operationalisation of the AC concept in practice. From the answers given to the semi-structured case interview questions is concluded that Aviko B.V. has a high absorptive tension towards (1) competitor, (2) market, (3) customer, and (4) product knowledge. However, Aviko B.V. will not be able to acquire all the available knowledge for all these knowledge areas. For example, Aviko B.V. wants to acquire more knowledge from competitors that compete with Aviko B.V. in multiple market segments and multiple countries. There is less interest in knowledge on local competitors. Therefore, Aviko B.V. needs to focus on these four knowledge areas. This does not imply that certain knowledge is more important than others when creating strategic foresights. The full transcripts, including the legend of the coding system, are presented in Appendix I and the full results of the single case study are presented in Appendix J. Competitors: From a global perspective, the most important competitors are the so called Champions league players, such as McCain and Lamb Western. In addition Aviko B.V. defines the other competitors as a Middle group, such as Farm Frites and the low cost producers, such as small local producers. From a country perspective the most important competitors differ by geographical area and product market combinations: chilled fries, chilled specialities, frozen fries, and frozen specialities. Because Aviko B.V. has a growth strategy they want to gain knowledge about potential firms that can be used for external venturing activities. The results show that Aviko B.V. wants to have knowledge about (1) the market position/sizes and (2) competitive profile of the competitors. The results of processes 1 and 2, related to the competitors, is shown in Figure 5.1. Figure 5.1: Competitor Knowledge area The power of Absorptive Capacity 38

47 Market: The results from the single case study indicate that Aviko B.V. is interested in three knowledge areas related to the foodservice market. These are defined as the (1) foodservice market trends, (2) developments in the market segments, and (3) foodservice industry developments. These knowledge areas offer opportunities or threats for Aviko B.V. in countries where Aviko B.V. is currently active on and also countries where this is not the case. From a global perspective Aviko B.V. is interested in the consolidated market knowledge from different countries. From a country perspective Aviko B.V. is especially interested in the foodservice market trends and the historic and future growth rates and market sizes of current and potential new segments. The prioritisation is based on the strategy and potato relevance of Aviko B.V.; so which opportunities and threats do a specific market segments have and to what extend can Aviko B.V. take advantage of these opportunities and/or eliminate the threats. The results of processes 1 and 2, related to the knowledge area market, is visualised in Figure 5.2. Figure 5.2: Market Knowledge area Customers: Aviko B.V. wants to have knowledge about their end users and wholesalers. The end consumers, who consume Aviko s products, are not included because Aviko B.V. is not in direct contact with them. What knowledge to focus on within the customer knowledge area is specified, just as with the market knowledge, on the corporate strategy and potato relevance of Aviko B.V. This means that the first priority is on gaining knowledge about QSR and Fast casual dining restaurants in United Kingdom, Poland, and China. Furthermore, the first priority is on the larger chained accounts (end users) who Aviko B.V. has direct contact with. The second priority is on the Potential QSR and Fast casual dining restaurants. So, who are potentially new end users who Aviko B.V. can approach. Just as with the external venturing firms, the required knowledge differ for these firms. However, the steps of steps stay the same; what potential end users does Aviko B.V. wants to gain more knowledge on, and determine and organise that internal and external information sources etc. The results related to processes 1 and 2, related to the knowledge area customers, is visualised in Figure 5.3. The power of Absorptive Capacity 39

48 Figure 5.3: Customer Knowledge area Product: The results of the single case study indicate that product knowledge is closely related with competitor, market/industry, and customers/consumers knowledge. Product introductions are, for example, subdivided under competitor knowledge. On a product group/concepts/trend level Aviko B.V. wants to benchmark their products with competitor brands and analyse when it is time to innovate them. If Aviko B.V. incorporates this knowledge better we would be able to be more innovative (interviewee 1.1). So, Aviko B.V. wants to have knowledge about (1) competitor brands and (2) product trends (combination of market and consumer trends). What knowledge to focus on within the product knowledge area is specified based on the type of benchmark. Aviko B.V. can benchmark their own products against product characteristics and marketing strategies of competitive brands. Furthermore, Aviko B.V. can benchmark their products against specific product groups, for example, skin on frozen fries or against specific competitors. Finally, Aviko B.V. needs to have knowledge about their own products. The results from processes 1 and 2, related to product knowledge, is visualised in Figure 5.4. Figure 5.4: Product Knowledge area For gaining knowledge of four knowledge areas with the highest priority different internal and external information sources are currently used by Aviko B.V. From process 3 is concluded that the most important internal information sources are the Sales and Marketing department. The most important external information sources are: Press releases, Magazines & Websites, Euromonitor, exhibitions, BTG, Euromonitor, Annual reports, and Social Media. The power of Absorptive Capacity 40