The knowledge strategy orientation scale: individual perceptions of firm-level phenomena.

Researchers (e.g., Volberda, 1996; Hedlund, 1994) have pointed out that explorers and exploiters often require very different types of organizational cultures, competencies, and structures. Therefore, once a firm creates a competency in either exploration or exploitation, it is usually more efficient for the firm to continue on that particular path (Levinthal and March, 1993). Additionally, researchers in the field of management of technology have discussed the difference between radical and incremental innovations (Damanpour, 1991; Dewar and Dutton, 1986; Ettlie et al., 1984), which can be viewed as outputs of exploration and exploitation, respectively. Thus, a valid measure of an exploration-based knowledge strategy orientation should be associated with distinctive competencies that are required to develop and implement a radical innovation. Specifically, explorers should be firms that aggressively invest in research and development, are creative in improving product technologies, and have established new product development processes that enhance their ability to bring new products to market quickly. On the other hand, a valid measure of an exploitation-based knowledge strategy orientation should be associated with distinctive competencies that are required to develop and implement an incremental innovation. Exploiters should invest more in new process technologies to reduce their cost structure, and excel at practices that facilitate customer satisfaction and promote continuous improvement, such as total quality management (TQM) and benchmarking. With these conceptualizations in mind we suggest:

H1: Distinctive competencies associated with radical innovation will be more strongly related to an explorer orientation than to an exploiter orientation.

H2: Distinctive competencies associated with incremental innovation will be more strongly related to an exploiter orientation than to an explorer orientation.

METHOD

Participants

Samples were drawn from employees of small to mid-size manufacturers located in the mid-Atlantic region of the United States. The firms represent a broad spectrum of manufacturing, belonging to 18 different Standard Industrial Classification (SIC) groups, including: Food Products (9 firms), Lumber and Wood Products (10), Printing and Publishing (5), Mechanical and Computer Equipment (8), Measuring, Analyzing and Controlling Instruments (5), Furniture and Fixtures (5), Chemical Products (2), Rubber and Plastics (4), Electronic Equipment (6), Primary Metal Industries (5), Transportation Equipment (3), Fabricated Metal Products (9), Stone and Concrete Products (2), Paper Products (2), Textile Mill Products (1), Apparel (3), Petroleum Refining and Related Products (1), and Miscellaneous (18).

Participating firms were identified through cooperation with state Small Business Development Centers which, using membership lists and small business directories, provided company names and contacts. Almost 90% of these companies met the Small Business Association criteria for definition of a small business, having 500 or fewer employees, with the remaining companies classified as mid-size firms (having between 501 and 1,800 employees). Of firms that were identified as subsidiaries of larger parent companies, only those that operated as independent profit centers (strategic business units) within the larger organization were included. Three surveys were sent to 250 companies that initially agreed to participate in the study. Contacts were asked to give surveys to three individuals working in different positions within the company. To ensure confidentiality and encourage participants to be candid in their responses, each respondent enclosed and sealed their survey in an envelope before returning it to the contact person at their company.

As Sharfman (1998) suggests in his study regarding the use of CEOs as sole informants in strategy research, prudent researchers should not rely solely on CEOs, but rather that more informants provide a richer picture of strategy constructs than one informant. Thus, we collected data from a variety of firms using respondents in a variety of positions within those firms. Ninety-eight different companies returned complete and usable surveys from three different respondents in their firms for a response rate of 39.2%. Sample One was comprised of respondents with the following positions in the 98 firms: 9.2% were CEO or President, 18.4% were Human Resources representatives, 33.7% were in Productions or Operations, 6.1% were in Sales or Marketing, 26.5% were in Finance, Accounting, or Administration, and 6.1% were something other. Sample Two was comprised of respondents with the following positions in the firms: 9.2% were CEO or President, 15.3% were Human Resources representatives, 42.9% were in Productions or Operations, 8.2% were in Sales or Marketing, 16.3% were in Finance, Accounting, or Administration, and 8.2% were something other. Sample Three was comprised of respondents with the following positions in the firms: 11.2% were CEO or President, 13.3% were Human Resources representatives, 38.8% were in Productions or Operations, 10.2% were in Sales or Marketing, 19.4% were in Finance, Accounting, or Administration, and 7.1% were something other. Each of these samples is remarkably similar with respect to respondents' positions in the 98 firms and they provide a reasonable cross-section of employees.

Measures

The surveys completed by respondents contained a number of items designed to elicit information about their individual perception of their firm's knowledge strategy orientation and distinctive competencies. Distinctive competencies were selected as potential correlates so that an effort at external validation could be undertaken. Operationalizations of the variables are provided below.

Knowledge Strategy Orientation. Participants completed information on their perception of their employing firm's knowledge strategy orientation via two sub-scales assessing the Explorer Orientation and the Exploiter Orientation. A five-point Likert type scale anchored by 1 = strongly disagree and 5 = strongly agree formed response scales for both sets of items. The explorer scale items focus on the key elements frequently associated with this construct in the literature: newness, radicalness, and creativity of ideas, technologies and products (March, 1991; Levinthal and March, 1993; Bierly and Chakrabarti, 1996; Zack, 1999). The items are: (1) We frequently experiment with radical new ideas (or ways of doing things), (2) At our company, employees frequently come up with creative ideas that challenge conventional ideas, (3) Compared to our principal competitors, a high percentage of our company sales come from new products launched within the past three years, and (4) We are usually one of the first companies in our industry to use new, breakthrough technologies. Cronbach's alpha for scores on this sub-scale was .71 in Sample One, .74 in Sample Two, and .70 in Sample Three.

The exploiter scale items capture the key elements frequently associated with this construct in the literature: refinement and extension of current technologies and products, increasing efficiency, and improving procedures (Holmqvist, 2004; March, 1991; Levinthal and March, 1993; Bierly and Chakrabarti, 1996; Zack, 1999). The items are: (1) Our company excels at continually improving our existing products, (2) At our company, a strong emphasis is placed on improving efficiency, (3) Our company excels at refining existing technologies, and (4) We frequently adjust our procedures, rules and policies to make things work better. Cronbach's alpha for scores on this sub-scale was .72 in Sample One, .70 in Sample Two, and .75 in Sample Three. Together, the eight items measuring Exploration and Exploitation comprise our Knowledge Strategy Orientation Scale (KSOS).

Distinctive Competencies. As early as 1980 Snow and Hrebiniak used a firm's expertise in various functional areas as a measure of distinctive competencies. In our assessment we focused on the degree of expertise evidenced in the functional areas of the organization and adapted several items from Delaney and Huselid (1996). Participants were asked to assess their organization's level of expertise in the following eight competency areas. The competencies associated with radical innovation include: basic research and development, product technologies, new product development, and speed in bringing a new product to market. The competencies associated with incremental innovation include: process technologies, knowledge of customer preferences, cost reduction, and benchmarking. For each of these distinctive competencies, participants were asked to indicate, on a scale of 1 to 10, where their firm ranked as compared to their main competitors (with 1 being well below industry average, 5 being the industry average, and 10 being well above the industry average). Although the relationships between our focal constructs and distinctive competencies are analyzed at the item level of distinctive competencies, evidence of the internal consistency of the items associated with radical innovation is provided by Cronbach's alpha of .85 in Sample One, .83 in Sample Two, and .85 in Sample Three. Cronbach's alpha for the items designed to measure incremental innovation was .87 in Sample One, .79 in Sample Two, and .85 in Sample Three. Thus, the distinctive competencies associated with radical and incremental innovation appear to be measuring their intended constructs.

Analysis