Journal of Accounting & Organizational Change · 2018
How can organizations adapt when established routines no longer fit a changing environment, and what role do entrepreneurial employees play in driving that change?
Mahringer, C. A., & Renzl, B. (2018). Entrepreneurial initiatives as a microfoundation of dynamic capabilities. Journal of Accounting & Organizational Change, 14(1), 61–79. 10.1108/JAOC-11-2016-0066
Organizations operating in dynamic environments have to adapt as customer preferences, technologies, competitors, regulations, and other external conditions change. Yet the routines and capabilities that make organizations efficient can also become increasingly misaligned with those new conditions. This creates a central problem of organizational adaptation: how can established firms renew themselves without relying exclusively on top management or abandoning the patterned activities on which everyday operations depend?
The paper addresses this problem by linking research on dynamic capabilities with corporate entrepreneurship and intrapreneurship. It argues that entrepreneurial initiatives by individuals and groups inside established organizations can provide a microfoundation for organizational adaptation. Employees who participate in everyday routines are well positioned to notice when established ways of working no longer fit changing external demands and can initiate efforts to modify or replace those routines.
The paper asks: How do entrepreneurial initiatives inside established organizations serve as a microfoundation of dynamic capabilities and foster organizational change?
This is a conceptual paper that integrates research on dynamic capabilities, microfoundations, organizational routines, and corporate entrepreneurship. It develops a multilevel model connecting environmental change, operative routines and capabilities, individual and group-level entrepreneurial initiatives, and organization-level dynamic capabilities. This perspective is useful because it moves below abstract firm-level capabilities and specifies how employees and middle managers can contribute behaviorally to strategic renewal.
Purpose – The purpose of this paper is to show how entrepreneurial initiatives in organizations serve as a microfoundation of dynamic capabilities and, thus, foster change in organizations. Design/methodology/approach – This paper revises and applies conceptual and empirical research on dynamic capabilities, their microfoundations and corporate entrepreneurship. In addition, it develops a model of how entrepreneurial initiatives, operative routines and capabilities interact. Findings – The paper develops a model of how entrepreneurial initiatives in organizations represent a microfoundation of dynamic capabilities. First, the model shows that environmental dynamism reduces fit of operative routines and capabilities. Second, the model states that entrepreneurial initiatives are triggered by operative routines and capabilities with respect to environmental dynamism. Third, the model suggests that entrepreneurial initiatives disrupt operative routines and capabilities and, thus, restore their fit in dynamic environments. The paper contributes to current research on dynamic capabilities, their microfoundations and corporate entrepreneurship. Originality/value – This paper addresses the tension between routinization and the entrepreneurial nature of dynamic capabilities. Considering entrepreneurial initiatives as a microfoundation shows that dynamic capabilities might be entrepreneurial, but still preserve their patterned nature enabling repeated execution. This approach provides a way to reconcile the two sub-streams in dynamic capability research and preserve their ontological assumptions. Moreover, this paper extends the literature on dynamic capabilities by ascertaining how individual and group level entrepreneurial initiatives operate within a broader context.
The paper explains how employee-driven entrepreneurial initiatives can connect environmental change with the renewal of organizational routines and capabilities.
Routines and capabilities that worked well under previous conditions may become less appropriate when technologies, customer preferences, competitors, or regulations change. Dynamic capabilities are therefore needed to restore alignment between internal ways of working and the external environment.
Individuals and small groups can recognize that existing routines no longer fit emerging opportunities or threats. Because employees and middle managers participate directly in organizational routines, they can connect knowledge of everyday work with signals from customers, markets, technologies, and other external developments.
Entrepreneurial initiatives can challenge accepted action patterns, rapidly modify existing routines, or generate new ones. Initiatives may spread from individuals to groups and eventually contribute to strategic renewal by restoring the fit between organizational capabilities and changing environmental demands.
The paper connects three broad research conversations: dynamic capabilities, microfoundations, and corporate entrepreneurship. It explains how firm-level adaptive capacity can be grounded in entrepreneurial behavior by individuals and groups and thereby moves beyond explanations that treat top managers as the primary agents of capability development.
The model also links intrapreneurship to strategic renewal and organizational routines. It suggests that routinization and entrepreneurship can coexist: organizations can preserve repeatable capabilities while entrepreneurial initiatives periodically disrupt the routines that underpin them when environmental conditions change.
Organizations seeking to become more adaptive should create ways for employees and middle managers to sense external change and compare it with how work is currently performed. Customer feedback, market surveys, and communities of practice with external participants are examples of mechanisms that can make changes in the environment more visible.
Managers can also create conditions in which entrepreneurial initiatives are able to develop collectively. Connecting employees who want to change established routines, providing management support and work discretion, and designing appropriate rewards can help individual observations develop into initiatives with the potential to drive broader organizational change.
