Architectural Innovation Capability and Performance: The Moderating Role of Absorptive Capacity

Abstract

Knowledge processing capabilities including knowledge creation and absorptive capacity are required to renew a firm’s knowledge stock. These capabilities keep firms abreast of technological and market changes as they enable a proactive approach in responding to these changes. An outdated knowledge stock and the overlooking of changes in external knowledge are destructive in today’s competitive environment; firms in these circumstances risk being caught in competency traps and rigidities. Hence, knowledge exploitation has an indispensable role in enhancing innovation. This thesis focuses on architectural innovation which is the capability to reconfigure products’ components and so create novel products. It requires the creation of new architectural knowledge while reserving the component knowledge. Although this innovation capability relies profoundly on creating new architectural knowledge, it is also important that firms are competent in absorbing external knowledge. Although the literature on new product development performance captures innovation as a prerequisite of performance, it is yet unclear how architectural innovation capability affects performance. Therefore, this thesis explores the interaction effect of architectural innovation capability and absorptive capacity on firms’ performance.

Although knowledge creation coined with organisation’s absorptive capacity drive innovation, the innovation literature over the last two decades emphasises integrating knowledge from external sources, particularly from lead users. Lead users’ contribution to product quality is one of the under-researched areas. In addition to the dearth of empirical research, quality was measured by experts’ judgment; it is possible that this judgment may be a biased evaluation of quality compared with a quantitative scale devoted to measure quality. To overcome the previous research’s limitation in measuring quality, this research examines how lead users’ integration promotes product quality as measured using a validated scale.

The developed theoretical framework links knowledge creation with architectural innovation capability; at the same time it explores the interaction effect of architectural innovation capability and absorptive capacity on new product development performance. Furthermore, the theoretical model captures the effect of lead users’ integration on development time and product quality. Empirical findings, based on primary data collected from 196 UK manufacturing companies show that, knowledge creation modes (socialisation and internalisation) have a positive effect on enhancing architectural innovation capability. Also, absorptive capacity interaction with architectural innovation capability affects financial performance. Assimilation and transformation strengthen innovation’s impact on performance, while exploitation weakens this effect. Finally, the analysis shows that the integration of lead users positively affects development speed and product quality.

Overall, this study contributes to the literature on knowledge processing capabilities by suggesting that knowledge creation is one of the underlying capabilities needed for innovation. In addition, this research contributes to the sheer amount of literature on absorptive capacity, by suggesting that different capacities have different effects on innovation and performance. The major value added by this research relates to architectural innovation capability; the findings suggest that both knowledge processing capabilities and absorptive capacity affect the capability to create new linkages between product components and technologies.