Integration and Dynamic Capability: Evidence from Product Development in Automobiles and Mainframe Computers

Abstract

We investigate the impact of two kinds of integration—internal and external—on dynamic capability. We use product development activities as a lens with which to focus on the capability-building process in a firm. We first develop a conceptual model of the capability-building process that relates specific problem-solving activities to the generation of organizational capabilities. We derive a measure, ‘ynamic performance’, that estimates the level of dynamic capability in an organization based on the consistency of its performance. Furthermore, we use the model to motivate a series of hypotheses which link specific processes to the achievement of high dynamic performance. We conjecture that the capacity to integrate diverse knowledge bases through problem solving is the basic foundation of knowledge building in an organization, and is therefore a critical driver of dynamic performance. The hypotheses are tested by drawing on extensive cross-sectional empirical studies of product development in the automobile and mainframe computer industries. The work follows by providing detailed longitudinal cases describing the impact of integration on competence-building processes at Nissan and NEC.