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Organizational Ambidexterity & Interlock Diversity:
Non-Executives In Their Resource-Providing Function
Author: Patrick van der Zwan
Student Number: 305424
Master Programme: Strategic Management
Coach: Dr. Mariano (Pitosh) Heyden II
Supervisor: Dr. Jathinder S. Sidhu
Co-reader: Dr. Koen Dittrich
Date: 31-05-2012
2
Organizational Ambidexterity & Interlock Diversity:
Non-Executives In Their Resource-Providing Function
The copyright of the Master thesis rests with the author. The author is responsible for its
contents. RSM is only responsible for the educational coaching and cannot be held liable for
the content.
3
Executive Summary
Due to the globalization and liberalization of financial markets, organizations are exposed
with an increasing dynamic business environment. The competitive landscape forces
organizations to the pursuit of both long and short term strategies. Organizations that are
adapt at managing both long and short term strategies are often called ambidextrous. The
present study explored important antecedents of organizational ambidexterity. An
ambidextrous organization is able to cope with the tensions between exploration and
exploitation and is therefore capable of simultaneously exploiting existing competencies and
exploring new opportunities (Raisch et. al, 2009). Research up till now remains rather
inconclusive and this lack in consensus regarding the antecedents and underlying constructs
of ambidexterity has led to the use of a variety of different measures to operationalize the
ambidexterity construct (Cao et. al, 2009). Drawing on the concepts of relational capital and
interlock diversity, this study focuses on a bundle of unique antecedents, which have not yet
been integrated in a conceptual framework.
Key in this paper is the notion that non executive directors play a vital role in influencing
corporate strategy formulation and performance. Building on previous theories about board
capital, I advance a model that captures the board’s ability to provide resources to a
organization. The concept of relational capital - ‘the sum of the actual and potential resources
embedded within, available through, and derived from, the network of relationships possessed
by an individual’ (Nahapiet and Goshal, 1998) – has been extended and a new dimension is
proposed: a quality dimension. In introducing this ‘relational capital quality’ concept, it is
asserted that the amount and quality of the information and resources directors provide access
to, depends on the actual quality of the organizations they have ties to. Furthermore, the
strategic context of these relationships is considered to be of influence on the process of
translating the critical knowhow gained from directorships into concrete advice and counsel.
Operationalized by the amount of related and unrelated directorships, the concept of interlock
diversity has been taken into account and its relationship with organizational ambidexterity is
tested.
By conducting a longitudinal analysis of a sample of 203 organizations, the author
investigated the hypothesized relation between relational capital quality, interlock diversity,
and organizational ambidexterity. As a stand-alone variable, relational capital quality has been
revealed not to be an antecedent of organizational ambidexterity. As a sub-component of the
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interlock diversity construct, the amount of unrelated directorships negatively affected the
concept of organizational ambidexterity. An interesting result, as it was hypothesized that the
amount of unrelated directorships would have a positive relationship with ambidexterity.
The most striking outcome of the study concerned the interaction effect of interlock diversity
on the relationship between relational capital quality and organizational ambidexterity. The
interaction effect resulted in a slightly positive relation between both variables, leading to
positive outcomes on the organizational ambidexterity construct. Whereas both variables
individually had a negative relationship with organizational ambidexterity, the combination of
both leads to synergy effects. In the quest for organizational ambidexterity, whether and by
how much the organization capitalizes on diverse opportunities, might be dependent on their
ability to create an optimal balance between relational capital quality and interlock diversity
Acknowledgements
The author thanks his supervisors, Jatinder S. Sidhu and Mariano (Pitosh) Heyden II, for
providing valuable and constructive comments during the master thesis trajectory. Their
suggestions and insights have been a true source of inspiration and have been very helpful for
improving this study. Furthermore, I want to thank co-reader Koen Dittrich for assisting me in
the final process of my thesis defense.
Declaration of originality
I hereby declare that the present master thesis is original and free from plagiarism.
Patrick van der Zwan
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Table of content
Executive Summary ................................................................................................................... 3
Acknowledgements .................................................................................................................... 4
Declaration of originality ........................................................................................................... 4
Organizational ambidexterity and interlock diversity: Non-executives in their resource
providing function. ..................................................................................................................... 7
Abstract ...................................................................................................................................... 7
Chapter 1 - Introduction ............................................................................................................ 7
1.1 Introduction ................................................................................................................. 7
1.2 Research objectives ..................................................................................................... 9
1.3 Contributions & Relevance ....................................................................................... 10
1.4 Research approach ..................................................................................................... 10
1.5 Thesis structure .......................................................................................................... 11
Chapter 2 – Theory .................................................................................................................. 11
2.1 Introduction ............................................................................................................... 11
2.2 Board capital .............................................................................................................. 13
2.2.1 Relational Capital Quality .................................................................................. 13
2.2.2 Interlock Diversity .............................................................................................. 15
2.3 Ambidexterity ............................................................................................................ 16
2.4 Relational Capital Quality, Interlock Diversity and Organizational Ambidexterity . 18
2.4.1 Relational Capital Quality and Organizational Ambidexterity .......................... 18
2.4.2 Interlock Diversity and Organizational Ambidexterity ...................................... 19
2.5 Conclusion ................................................................................................................. 21
Chapter 3 – Methodology ......................................................................................................... 22
3.1 Introduction ............................................................................................................... 22
3.2 Research Strategy ...................................................................................................... 22
3.3 Sample and Data Collection ...................................................................................... 22
3.4 Measurement ............................................................................................................. 23
Chapter 4 - Analyses and Results ............................................................................................. 26
4.1 Descriptives ............................................................................................................... 26
4.2 Analyses and results .................................................................................................. 28
Chapter 5 – Discussion and Conclusion .................................................................................. 32
5.1 Discussion of the results ............................................................................................ 32
6
5.2 Contributions ............................................................................................................. 36
5.3 Future Research ......................................................................................................... 37
Conclusion ................................................................................................................................ 39
References ................................................................................................................................ 40
7
Organizational ambidexterity and interlock diversity: Non-
executives in their resource providing function.
Abstract
Despite the broad range of disciplines involved in investigating the board of directors, there is
mixed evidence on the role the board of directors play in pursuing exploration and
exploitation strategies. These studies put forward different perspectives on the effect of board
capital on strategic change and corporate performance. Whereas relational capital has been
found to influence the process of strategic decision making, no theory has been developed that
takes into account the actual quality of board’s relational capital. In response to this disparity,
the paper’s key contribution lies in developing a more comprehensive theoretical model that
hypothesizes how the relational capital of the board can lead to different impacts on
organizational ambidexterity. Building upon resource dependence theory, it is submitted that
board ties to well-performing companies foster organizational ambidexterity. Moreover,
interlock diversity is recognized as a moderator of this relationship. The hypotheses are tested
in a longitudinal sample of 223 manufacturing firms operating in the Industrial Machinery
and Equipment industry (two-digit SIC code 35). Partial support is found for the effect of
relational capital quality on organizational ambidexterity, and support is found for the
moderating effect of interlock diversity.
Key words: ambidexterity, exploration, exploitation, board capital, relational capital quality,
interlock diversity.
Chapter 1 - Introduction
1.1 Introduction
Nowadays, organizations are faced with business environments in which the competition is
increasingly intensifying and the pace of change is accelerating (Jansen et. al, 2006). As a
consequence, organizations are required to be operating simultaneously for the short and the
long term. To gain competitive advantage, or even survive this competitive rivalry,
organizations must excel at both exploitative and explorative innovations (Andriopoulos and
Lewis, 2009). Existing literature already explored this seemingly paradoxal relation between
innovativess in the long run and efficiency in the short run (e.g. Gibson & Birkinshaw, 2004;
Levinthal & March, 1993). Ambidextrous organizations are capable of coping with the
8
tensions between exploration and exploitation and thus are capable of simultaneously
exploiting existing competencies and exploring new opportunities (Raisch et. al, 2009)
As a counterpart of the above mentioned organizational pressure to perform in the short and
the long term, over the last decades the societal demand for accountability and transparency of
companies has been growing (Bezemer et. al, 2007). Corporate governance, referring to “the
system by which companies are directed and controlled” (Cadburry Committee, 1992), has
become crucially important. Attention has been devoted to the role of non-executive directors
in monitoring managerial intentions on behalf of shareholders and in providing additional
resources to the organization (Hillman and Dalziel, 2003).
Building upon the resource provision function, Haynes and Hillman (2010) recently
conducted research on the influence of the board of directors on strategic change. More
specifically, they focused on the construct of board capital, referring to the ability of the board
to provide resources to the organization (Hillman and Dalziel, 2003). Pfeffer and Salancik
(1978) introduced this function of boards and according to them an effective board has the
ability to provide advice and counsel to the organization on substantial matters such as
strategy formulation, access to information outside the organization, preferential access to
valuable resources through personal connections, skills and expertise and legitimacy.
A way organizations get access to valuable resources and absorb critical knowhow is to
capitalize on the relationships captured by their board of directors, also referred to as
relational capital. Key in theories on relational capital is the notion that board members
individually bring in relational capital to the board and that the amount and quality of their
relational capital is a function of their connectivity to outside groups and firms (Datta, 2011;
Simsek, 2009). Current theories have not yet focused on the actual quality of relational capita
sources: the companies directors have relations with. In other words, no qualitative distinction
is made in the relations of directors. What role does organizational performance play in the
exchange of relational capital? Do connections with better performing organizations lead to
qualitatively superior relational capital? Than how does this relational capital quality relate to
the pursuit of ambidextrous corporate strategies?
In addition to the discussion on relational capital, literature on board networks emphasizes the
importance of network diversity in realizing superior firm performance. (E.g. Simsek, 2009;
Datta, 2011; Wincent et al, 2010) Taking into account the ambidexterity topic of this paper,
these studies highlight the important role that diverse board connections play in the pursuit of
9
exploitation and exploration strategies. What about the role of interlock diversity in the
creation of relational capital? Does interlock diversity lead to qualitatively superior relational
capital? And is the concept of interlock diversity also directly related to the pursuit of
organizational ambidexterity?
Whereas reasonable consensus exists on the merits of pursuing both exploitation and
exploration strategies (Jansen et. al, 2006), according to Simsek (2009) organizational
ambidexterity remains an under-theorized, under-conceptualized and, therefore, poorly
understood phenomenon. In bringing together the concepts of relational capital quality,
interlock diversity and organizational ambidexterity, this study contributes to the current field
of research and may be an important key in the puzzle, called “Ambidexterity”.
1.2 Research objectives
Due to the under explored nature of the relationship between relational capital quality and
organizational ambidexterity, there is a lack of conceptualization and theory on this topic.
Conducting this research serves both academic and managerial objectives. The academic
objective of my research is to contribute to the existing literature on networks, board capital
and organizational ambidexterity, by investigating whether a relation can be found between
relational capital quality and organizational ambidexterity. At this moment, there is a lack of
understanding what factors influence organizational ambidexterity and therefore this research
adds understanding to the various antecedents of organizational ambidexterity. Whereas the
current body of literature already elaborates on the role of executives (e.g. CEO and TMT),
much less is known about the role of non-executives in fostering organizational
ambidexterity.
Besides potential contributions to the ambidexterity literature, this research adds new insights
to the board capital literature as well. Scholars emphasize the constructs of human and
relational capital, without taking into account the actual quality of this board capital
dimensions. In doing so, it is currently assumed that the amount and quality of relational
capital directors bring in, is a function of their connectivity to outside groups. From this
assertion, the actual quality of the organizations they are connected with does not play any
role in this process. The present research focuses on the foundations of the relational capital
construct and introduces a new (quality) dimension. Moreover, the research will contribute to
the board capital literature, since current literature does not prove any relation between board
capital and the pursuit of exploration and exploitation.
10
The main managerial objective of this research lies in the fact that over the last decades the
relative importance of and critique on the functioning of non-executive directors has been
growing. By conducting this research, new insights might be gained on the concept of board
capital in relation to the pursuit of exploration and exploitation. As such, the present research
provides insights for non-executives, executives and organizations as a whole. The
contributions of this research, might increase the ability of a board of directors to contribute to
organizational ambidexterity and thus to the creation of competitive advantage.
1.3 Contributions & Relevance
The academic objective of the present research is to contribute to various streams of literature
by investigating whether a relation can be found between relational capital quality and
interlock diversity on organizational ambidexterity. Currently insights are lacking on the
antecedents of organizational ambidexterity and the role that non-executive directors may
play in fostering ambidexterity. The results of this study may give a better understanding of
how directors are involved in the organization’s process of becoming ambidextrous. The
paper’s key contribution lies in developing a more comprehensive theoretical model that
hypothesizes how the relational capital of the board can lead to different impacts on
organizational ambidexterity. In doing so, a major contribution is made to current literature on
board capital.
The relevance of my research also lies in testing how interlock diversity interacts with the
concept of relational capital. The results give a better interpretation of the role director’s
relations play and how they manage this in combination with relational capital quality. The
findings of this research help highlight how boards can manage their network relations in such
a way that it is beneficial for the company as a whole.
1.4 Research approach
In order to measure the relationships conceptualized in the conceptual model, both
quantitative and qualitative research methods were used. Adopting a longitudinal approach,
data has been collected for 203 organizations in the period 2003-2007, comprising over 1700
directors. Qualitative data on organizational ambidexterity has been coded into quantitative
data using a computer-aided content analysis approach and theory. In doing this, both the
reliability and the ability to analyze the data gathered have been enhanced. The relational
capital quality construct has never been conceptualized before and scales for this new variable
11
had to be developed. Qualitative data on board member directorships (companies board
members have ties to) has been coded into quantitative data by looking up the earnings per
share of each individual company.
1.5 Thesis structure
The present research will be structured in a particular way. In chapter one, I will introduce the
main research problem, objectives and contributions. Chapter two, the theory, will elaborate
on the first chapter by defining the concepts used in the study. This chapter brings together
the most prominent perspectives on relational capital, organizational ambidexterity and
interlock diversity. The concepts are being integrated in a conceptual model. The third chapter
will be about the methodology used to measure the effect of relational capital quality on
organizational ambidexterity. Moreover, the various variables and the sample group are
described in this chapter. In the fourth chapter, analysis and results, the main outcomes of the
quantitative study will be summarized. An empirical analysis will be conducted to explain the
outcomes in further detail. The fifth chapter will contain the discussion on the empirical
results. The chapter gives an indication of the limitations and elaborates on further
recommendations for future research.
Chapter 2 – Theory
2.1 Introduction
Recent corporate governance scandals such as Enron and WorldCom in the United States and
Ahold in the Netherlands, shocked the corporate world and got a lot of attention in both
business and popular press (Hooghiemstra and Van Manen, 2004; Bezemer et. al, 2007). Due
to the increased (negative) attention for corporate governance practices, corporate governance
frameworks were reformed globally and many countries introduced new corporate
governance codes. In response to corporate governance shocks, the USA introduced new
legislation and new listing rules. On 30 July 2002, the Sarbanes-Oxley Act became effective
(Linck et. al, 2008). The new legislation was designed to enhance corporate responsibility and
enhanced new standards for all U.S. public company boards, management and public
accounting organizations. (Sarbanes-Oxley Act of 2002, Public Law 107–204, U.S. Statutes at
Large 116 (2002): 745.)
12
Characterized by a one-tier board system, executive and supervisory responsibilities are
united in one legal entity, the board of directors (Weimer and Pape, 1999). Whereas the
initiation and implementation of corporate decisions are the responsibility of the management
board (Maassen van Van den Bosch, 1999), traditionally, in its primary function, the board of
directors has a monitoring function. Non executive directors have the responsibility to
monitor managers on behalf of shareholders (Hillman et. al, 2008). The monitoring role finds
its grounds in the agency theory, which focuses on the potential conflicts of interest that arise
due to the separation of ownership and control. By applying an effective incentive system and
a suitable structure, effective governance practices are promoted and stimulated (Kor and
Sundaramurthy, 2009). Agency theorists thus emphasize the responsibilities and duties of
non-executive directors to ensure that managers are acting in the interests of shareholders
(Hillman and Dalziel, 2003).
Prior research on board functioning, suggests a second important board function: the
provision of resources. Drawing upon work of Pfeffer and Salancik (1978) on the resource
dependence theory, in its resource provision function, the board provides advice and counsel
to the organization on substantial matters, access to information outside the organization,
access to valuable resources through personal connections, skills, expertise and legitimacy
(Haynes and Hillman, 2010). In their review on the literature of the resource dependency
theory, Hillman, Withers and Collins (2009) emphasize the applicability of this theory in
understanding board functioning. As they conclude: “strong support exists for Pfeffer and
Salancik’s (1978) assertions that boards can manage environmental dependencies and should
reflect environmental needs.”
As shown in the research conducted by Carpenter and Westphal (2001), agency assumptions
on outside director’s knowledge ability and competence to fulfill their tasks became under
question. Their research yielded significant empirical support for the notion that the
monitoring and advising behavior of non-executive directors depends on the strategic
perspective and base of expertise and thus that boards may vary in their ability to perform
their tasks. A new stream of research is devoted to explain the variations in director’s
contributions to the board and pay significant attention to their human and relational capital
(Certo, 2003; Hillman and Dalziel, 2003; Hillman 2005).
13
2.2 Board capital
Having a resource provision function, the board is perceived as a provider of resources, rather
than just an evaluator of management. The ability of the board to acquire and provide
resources, by Hillman and Dalziel (2003) referred to as ‘board capital’, has already been
extensively researched by resource dependence scholars (Hillman, Cannella and Paetzold,
2000; Pfeffer and Salancik, 1978). Building upon the work of Pfeffer and Salancik (1978)
who defined concrete resource provision functions for directors, Hillman and Dalziel (2003)
assert that board capital is the composite of individual director’s human and relational capital.
Generally, it is assumed that “boards help accessing strategically important resources and
manage external dependencies by linking the organization to the outside environment and by
providing resources that increase various aspects of performance (Wincent, Anokhin and
Örtqvist, 2010). Hence, outside (non-executive) directors are key players in setting corporate
governance strategy and strategic decision making (Finkelstein and Mooney, 2003).
Importantly though, for organizations to minimize transaction costs and maximize board
member’s resource acquisition potential fully, the composition of the board should reflect the
organizational dependencies so that the human and relational capital of the board enable the
organization to obtain its critical resources.
2.2.1 Relational Capital Quality
Being one of the two components of the board capital construct, relational capital refers to
‘the sum of the actual and potential resources embedded within, available through, and
derived from, the network of relationships possessed by an individual (Nahapiet and Goshal,
1998). As emphasized by Wincent, Anokhin and Örtqvist (2010), various advantages are
available through a board’s relational capital, including critical knowhow (Kale et. al, 2000),
complementary skills (Eisenhardt and Schoonhoven, 1996) and access to and information
about innovative endeavors (Biemans, 1991). In the context of board functioning relational
capital refers to both the ties held by directors and the assets the board can obtain and
mobilize through those ties.
Despite the knowledge and information benefits of relational capital, extant literature suggests
that there are costs associated with the generation of it and that it may become an impediment
to organization functioning. (Oh et al, 2006) As emphasized by Carpenter and Westphal
(2001), serving on several boards can take a toll on outside director’s limited time and
attention. To fulfill their advisory and governance duties effectively, directors should have a
14
fine-grained view of the organizational strategic and governance issues (Carter and Lorsch,
2004). As such, serving multiple boards may harm directors’ contributions to a particular
board in a way that the organizational competitiveness and ability to generate growth can be
dampened by the lack of proper advising and governance by directors. (Conger et al, 2001)
Focusing on the ideas of relational capital, no distinction is made in the actual quality of the
information and resources directors bring in to the board. Theories assert that directors who
are broadly connected to outside groups will have greater relational capital (e.g Datta, 2011;
Simsek, 2009). Therefore, the resources made available through these relationships are
considered to be relevant and of high quality, thereby increasing the board’s relational capital.
(Certo et al, 2001) Scholars already emphasized that the strength of the relationship may have
some drawbacks on the innovative performance of the focal organization. Suggested is that
strong relationships may restrict one’s flexibility (Dakhli and De Clercq, 2001), make the
organization dependent on the actors one is linked to (Bruce and Rodgus, 1991) and hinder
responding to emerging opportunities (Florida et al, 2002). Extending this view, the actual
quality of the information and resources that directors bring in to the board, may as well be
dependent on the organizational performance of the firms the director has ties to: the actual
sources of this relational capital.
Organizations are heterogeneous in their resources and capabilities (Barney, 1991). The
strategic choices on how and where they use them, determines to a great extend how they
actually perform (Richard et al, 2009). In this sense, relationships with superior performing
organizations can be expected to provide more access to timely information, diverse ideas,
and critical political, instrumental and emotional resources, than relationships with poorly
performing organizations. Directors will therefore not only bring in more resources when they
are connected to better performing organizations, the quality of the information and resources
they provide access to will also be of greater quality and relevance for the focal firm. Taken
together, this would imply that connecting to superior performing organizations will increase
the quality of relational capital. The core proposition put forward is that connecting to better
performing organizations will increase the organization’s ability to manage the often
contradictory tensions of balancing exploration and exploitation.
Organizational performance is one of the most important constructs in management research.
Within strategy research, financial market-based measures are the preferred instrument for
characterizing organizational performance, because they are forward looking and represent
15
the discounted present value of future cash flows (Fisher and McGowan, 1983). Traditionally,
one of the few broadly adopted measures for organization value is the value of the earning-
per-share (net operating profit minus dividends paid to preference shares divided by the
number of common stocks issued).
From a relational capital point of view, it can be argued that the quality of the information and
resources directors provide access to, is a function of the organizational performance of the
organizations they are connected to. The superior performing firms are assumed to generate
higher earnings per share and possess more valuable resources and information. Besides, they
provide better advice and counsel on organizational problems and potential solutions.
Although a lot of research has been devoted on the importance and consequences of external
networks, a shared language containing valid meanings has not yet been developed. (Provan
et al, 2007) A new stream of literature has been developed examining how the strategic
context of the social network affects effective board functioning. (e.g. Carpenter and
Westphal, 2001; Datta, 2011, Simsek, 2009)
2.2.2 Interlock Diversity
Key in the discussion on the strategic context of social networks is the concept of network
diversity. Although network diversity has been conceptualized in various ways, the formation
of interlocking directorships is of crucial interest in these studies. (Simsek, 2009; Datta, 2011)
The concept of board interlocks has gained a lot of attention over the last years. A board
interlock is created between organizations when an executive or director at one organization
joins the board of another organization (Burt, 1980). Linking this dimension of board capital
to the resource provision functions proposed by Pfeffer and Salancik (1978), board interlocks
are a way to manage environmental uncertainty, gain access to both skills and resources and
facilitate communication between and across organizations.
Important in the construct of interlock diversity is the notion of heterogeneity. As indicated by
Haynes and Hillman (2010), heterogeneous boards have more breadth of knowledge,
creativity and experiences, as well as more access to valuable resources outside the
organization. In addition, inspired by the work of Golden and Zajac (2001), Haynes and
Hillman (2010) found that an increase in interlock heterogeneity leads to more options acted
upon. Hence, interlock diversity concerns the flow of information and the extent to which this
information is similar or redundant. (Burt, 1992) Acquiring industry-specific information
from multiple sources through directors of the board, enables the organization to handle
16
uncertainty effectively, by anticipating and responding to competitive moves and by gaining
superior knowledge of its competitors and industry opportunities and trends (Haynes and
Hillman, 2010).
2.3 Ambidexterity
The review on board literature clearly points out that board of directors play multiple (critical)
roles in organizations. Whereas the dominating perspective, the agency perspective, perceives
the board of director as a monitoring mechanism to ensure good organizational governance,
the current paper adopts a less explored view on board functioning. In the resource providing
role, the board of directors is viewed as a so-called ‘resource-vehicle’. The board of directors
has substantial influence on corporate strategy since organizations draw upon expertise and
guidance provided by the board of directors in setting corporate strategy (Goodstein, Gautam
and Boeker, 1994).
However, in business environments in which the competition is increasingly intensifying and
the pace of change is accelerating, setting a profound corporate strategy nowadays has
become a necessity. In order to be successful, an organization is increasingly required to be
operating simultaneously for both short and long term (Tushman & O’’Reilly, 1996, Jansen
et. al, 2006). The seemingly paradoxal relation between efficiency in the short run and
innovativeness in the long run has attained a lot attention of organizational researchers (e.g.
Gibson & Birkinshaw, 2004; Levinthal & March, 1993; Tushman & O‟ Reilly, 1996) and it is
referred to the pursuit of exploitation and exploration activities. Ambidextrous organizations
are capable of coping with the tensions between exploration and exploitation and are able to
simultaneously exploit existing competencies and explore new opportunities (Raisch et. al, 2009).
Raisch and Birkinshaw (2008) define ambidexterity as “an organization’s ability to be aligned
and efficient in its management of today’s business demands while simultaneously being adaptive
to changes in the environment”.
Building upon March’s article from 1991, the catalyst for the current interest in the concept of
ambidexterity, exploitation and exploration are two fundamental opposing learning activities
between which organizations divide their attention and resources. Whereas exploitation is
associated with activities such as “refinement, efficiency, selection, and implementation,”
exploration refers to notions such as “search, variation, experimentation, and discovery” (p.
102). However, as indicated by Gupta and Smith (2006) and emphasized by Cao, Gedajlovic
17
and Zhang (2009), whereas consensus consists on the importance ambidexterity, there is a lot
of ambiguity and disagreement on how this balance can be achieved.
On the one hand, the conceptualization of ambidexterity construct can be understood as
relating to a close balance of exploitation and exploration. In this view both activities compete
for resources (March, 1991). As Levinthal and March (1993) pointed out, the challenge is to
engage in sufficient exploitation to ensure current viability, while at the same time devote
enough energy and time to exploration to ensure future viability. Solely conducting
exploration activities, to the exclusion of exploitation, can be detrimental to the organization,
locking it into a cycle of undeveloped ideas, failure and search for new ideas (Gupta and
Smith, 2006). However, organizations that emphasize on exploitation activities, to the
exclusion of exploration, might lack the capability of adapting to future environmental
changes, which might endanger their success in the long run (Uotila et. al, 2009).
On the other hand, ambidexterity can be understood as relating the combined magnitude of
exploration and exploitation activities, corresponding to the view that both activities are
orthogonal (Gupta and Smith, 2006). Although the argument of scarce resources has generally
been supported in the current literature, this argument does not hold for all resources (e.g.
information and knowledge). Furthermore, the relationship between exploration and
exploitation depends much on the level of analysis. Whereas exploration and exploitation will
generally be mutually exclusive within a single domain, they will be orthogonal when studied
across different and loosely coupled domains. The present study very much build on March’s
(1991) exploration and exploitation concepts. As March originally posited it in his work, both
activities are conceptualized as two ends of continuum.
The context, in which organizational activities are categorized, plays an important role as well
in the quest for organizational ambidexterity. Current literature makes a separation in
structural and contextual ambidexterity. Whereas contextual ambidexterity focuses on the
simultaneous achievement of both exploitation and exploration at a business-unit level
(Gibson and Birkenshaw, 2004), structural ambidexterity separates both activities through
different mechanisms within the organization (Birkenshaw and Gibson, 2004). In the present
research, I will posit organizational ambidexterity as balancing high levels of exploration and
exploitation, rather than periodically switching between them. As Simsek (2009) puts it: “an
organization with low levels of exploration and exploitation is ‘balanced’, but not
ambidextrous.”
18
Until now, three distinct sets of antecedents of organizational ambidexterity have been
advanced: dual structures, organizational context and TMT characteristics (Simsek, 2009).
The influence that the board of directors has on attaining organizational ambidexterity hasn’t
received any attention yet. In the following section, the adopted concepts will be brought
together and hypotheses will be explained.
2.4 Relational Capital Quality, Interlock Diversity and Organizational
Ambidexterity
Although both the concepts of relational capital and ambidexterity have been attracting a lot
of attention over the last several years, the relation between both concepts has never been
investigated yet. Whereas recent research already focused on the blended impact of the CEO
and the TMT on ambidexterity (Cao et. al, 2010), the role of the board of directors remains
underexplored. Building upon the resource provision function of boards, non-executive
directors are expected to influence organizational processes and strategic outcomes directly
(Haynes and Hillman, 2010). As emphasized by Pfeffer and Salancik (1978), a board member
is expected to support the organization and concern himself with its problems and try to aid it.
Directors have to make important strategic decisions and review and approve various strategic
plans. All these responsibilities are expected to have a severe impact on organizational
functioning (Carter and Lorsch, 2004). Stiles and Taylor (2001) argue that, due to their duties
and responsibilities, the board of directors has a ‘gatekeeping’ function. They propose that the
board of directors has significant decision power on strategic change proposals and resource
allocation decisions. Combined, the notion that the board of directors does have an influence
on organizational ambidexterity becomes plausible.
2.4.1 Relational Capital Quality and Organizational Ambidexterity
An extensive network of relations to superior performing organizations suggests that a board
has access to information of quality and potential value to the organization. (Collins and
Clark, 2003) As such, the board has better insights on the firm’s exploitative and explorative
needs and options. (Simsek et al, 2009) Therefore, they are able to properly mobilize
resources in support of ambidexterity pursuits. (Sparrawe et al, 2001) Directors linked to
well-performing organizations can be expected to have superior insights and ideas on how to
tackle seemingly contradictory strategic tensions and/or are likely to have successfully coped
with similar challenges in the past at other firms. Therefore, relational capital quality is
expected to have a positive relationship with organizational ambidexterity. This means that
19
when the quality of the network ties increases, organizational ambidexterity increases as well.
Thus:
Hypothesis 1: Relational capital quality has a positive relationship with organizational
ambidexterity
2.4.2 Interlock Diversity and Organizational Ambidexterity
Interlock diversity affords an organization multiple benefits from the perspectives of attaining
ambidexterity. (Datta 2011, Simsek, 2009) An organization with strategically related board
connections has little opportunity to consider multiple perspectives, because most network
members face the same organizational issues and have the same perspectives on these issues.
As Haynes and Hillman (2010) state: “The strategic actions recommended and approved by
the board will thus compel the organization to take strategic actions similar to the ones in the
industry, increasing the conformity to industry norms.” In contrast, diverse ties imply that
firms may differ in their problem-solving approaches. They have different modes of
reasoning, leading to other problem formulations and unique solutions. Exposure to these
different approaches might benefit organizations in its problem-solving arsenal. These
perspectives form the base of ambidexterity, as the organization builds on them in attaining
organizational ambidexterity. (Simsek, 2009).
Interlock diversity is also valuable for organizations in helping to overcome the problems
associated with the familiarity trap. (Ahuja and Lampert, 2001) This refers to the tendency or
organizations to favor the familiar over the unfamiliar. As a consequence, firms might be
inclined to search for solutions that are in the neighborhood of existing solutions rather than
search for completely new solutions. (Ahuja and Lampert, 2001; Simsek, 2009, Datta, 2011)
Low interlock diversity implies that a board has ties to the boards of other companies that
follow similar corporate strategies and operate in similar product-market and international-
market contexts. (Carpenter and Westphal, 2001) Based on this, more ties to companies that
are strategically unrelated enable the organization to access a wider scope of information
about potential markets, business opportunities, innovations, sources of capital and potential
customers.
The above discussion leads to the notion that interlock diversity has a positive influence on
organizational ambidexterity. Although the advantages gained will be critically shaped by the
organization’s ability to avoid the potential downsides (Simsek, 2009), it is emphasized here
20
that organizations are likely to achieve interlock diversity without suffering network overload.
Thus:
Hypothesis 2a: The amount of unrelated directorships has a positive relationship with
organizational ambidexterity.
Hypothesis 2b: The amount of related directorships has a negative relationship with
organizational ambidexterity.
While I submit that interlock diversity has a direct effect on organizational ambidexterity, it is
also expected to moderate the relationship between relational capital quality and
organizational ambidexterity. Director’s ties to companies that are strategically unrelated to
the strategy of the focal firm enable a firm to access new perceptions and beliefs about
various aspects of strategic decision making (Haynes and Hillman, 2010) and deviates the
strategy from industry norms (Geletkanycz and Hambrick, 1997). On the other hand,
relationships to companies that are strategically related to the firm stimulate strategic
conformity to industry norms. (Burrell and Morgan, 1979).
Integrating this theory of interlock diversity with the relational capital quality concept, it is
possessed that connecting with qualitatively better performing companies will have a positive
effect on actual quality of relational capital. Hence, these companies possess more valuable
resources and information and provide better advice and counsel on organizational problems
and potential solutions. Important here, is the notion that relational capital quality and
interlock diversity doesn’t exclude one and another. Better performing organizations might be
either strategically related or unrelated. Taking into account the benefits of interlock diversity,
relationships with better performing organizations that are strategically unrelated would
therefore maximize the potential benefits for the focal organization in gaining information and
resources of quality and potential value to the organization. In this sense, lower interlock
diversity would hamper the benefits gained from connecting with qualitatively better
performing companies and as such have a negative effect on the level of ambidexterity. It
would be important for organizations to combine both aspects of director’s relationships in
order to realize maximum relational capital quality and attain organizational ambidexterity.
Interlock diversity can therefore be seen as moderator in de relationship between relational
capital quality and organizational ambidexterity. Thus:
21
Hypothesis 3a: The amount of unrelated directorships positively moderates the
relationship between relational capital quality and organizational ambidexterity.
Hypothesis 3b: The amount of related directorships negatively moderates the
relationship between relational capital quality and organizational ambidexterity.
The concepts of relational capital quality, interlock diversity and organizational ambidexterity
could be connected to each other according to the conceptual model below, see figure 1.
Figure 1 Conceptual framework
2.5 Conclusion
The current chapter provided the most prominent literature relevant for the present paper and
a new theory on relational capital quality has been developed. It was hypothesized that the
concept of relational capital quality has a positive influence on organizational ambidexterity.
This means that it is beneficial for companies to have relations with superior performing
firms. These interlocks allow the board to access information of quality and potential value to
Interlock diversity
Amount of unrelated
directorships
H1
H2b
H2a
H3b
H3a
Organizational
Ambidexterity
Amount of related
directorships
Relational Capital
Quality
22
the focal firm. As such, the board has better insights on the organization’s exploitative and
explorative needs and options, so that they can properly mobilize resources in support of
ambidexterity pursuits. Subsequently, it was hypothesized that interlock diversity would have
both a direct and a moderating effect on the level of ambidexterity attained. Multiple
perspectives have been set out and were integrated in a conceptual model. The next chapter
provides an overview of how the conceptual model has been operationalized and translated
into methods to measure the various relationships.
Chapter 3 – Methodology
3.1 Introduction
In order to test the statements hypothesized earlier, this chapter will give an in-depth
elaboration on the research methods adopted. The research strategy will be explained and a
description will be given of the sample used and data collection method. Furthermore, an in-
depth discussion on the study’s main variables is included.
3.2 Research Strategy
The hypotheses were tested in a five year longitudinal study focusing on the potential effects
of board capital quality on organizational ambidexterity. For the purposes of the present
research I have chosen to conduct a desk research in which both qualitative and quantitative
research methods have been adopted. The conceptual model for the research introduces rather
new concepts to the board capital literature. Whereas board capital theory has already been
widely researched (Hillman and Dalziel, 2003; Wincent et al, 2010; Haynes and Hillman
2010), the concept of board capital quality remains rather underexplored. In order to draw
conclusions on the relationships and contribute to the existing stream of literature, the study is
conducted in a quantitative manner. Qualitative data on relational capital and organizational
ambidexterity has been coded into quantitative data using existing scales and theory. In doing
so, both the reliability and the ability to analyze the data gathered has been enhanced.
3.3 Sample and Data Collection
Prior research on board functioning has already emphasized that it is important to conduct
research on the ‘group’-level of analysis, rather than focusing on individual directors (Kor and
Sundaramurthy, 2009). Individually, an outside director might not be able to fulfill its
advisory and governance needs properly. However, by bringing together multiple
23
complementary skills, knowledge and connections, it is the bundling of individuals that has
the potential to result in high quality performance (Conger, Lawler and Finegold, 2001).
Whereas several scholars call for an ‘individual director’-approach in explaining board
functioning and effectiveness (Zahra and Pearce, 1989; Finkelstein and Hambrick, 1996;
Hillman et. al, 2008), the present study focuses specifically on the collective ability of the
board of directors to provide advice to the management board and conceptualizes board
capital as a group-level construct.
The dataset to test the hypotheses consists of a true sample of 223 manufacturing
organizations operating in the Industrial Machinery and Equipment industry (two-digit SIC
code 35). 20 organizations were dropped due to missing data, resulting in a final dataset
composed of 203 organizations, representing 30 industries at the four digit Standard Industrial
Classification (SIC) code level. The longitudinal data on interlock diversity were collected
from secondary sources such as initial registration statements, proxy statements, company
websites and other business press (Kor and Sundaramurthy, 2009). Quantitative data on
relational capital quality are extracted from Compustat files. The first step in this data
collection procedure involved clarifying on the directorships each director held during the
time horizon of the research (2003 – 2007) and the industry codes of these company (SIC).
Using these SIC codes, CompuStat files have been collected in which information was
included on the organizational performance of these companies (market capitalization,
earnings per share [EPS] and earnings before interest taxes and appreciation [EBITDA]).
After correcting for missing data, EPS values has been used as a operationalization for
relational capital quality.
3.4 Measurement
Adopting a longitudinal desk research, data has been collected for 203 organizations whose
boards are composed of over 1700 individual board members. Not only the concept of
relational capital is rather new to the board capital literature, moreover the concept has never
been linked to organizational ambidexterity. Whereas the conceptualization of the relational
capital construct is in line with research of Haynes and Hillman (2010) and Dalziel et. al
(2011), previous studies do not provide an empirically tested operationalization for relational
capital quality. Prior to the creation of the interaction and stand-alone effects, the independent
variables were mean centered to reduce multicollinearity (Aiken & West, 1991). To examine
multicollinearity, I have calculated the variance inflation factors (VIF) for each of the
24
regression equations. The maximum VIF within the models was 2.850, which is well below
the rule-of-thumb cut-off of 10 indicated by Neter et al. (1990).
Dependent variable
Organizational Ambidexterity
Ambidexterity refers to a firm’s pursuit of both exploration and exploitation with equal
dexterity. (Cao et al., 2010) The method used to measure the amounts of exploitation and
exploration was a content analysis of the organizations’ annual reports over the period of
investigation. Using the content analysis program QSR NVivo 8.0, annual reports were
uploaded and a list of exploration related items and a list of exploitation related items was
created. This way of measuring the level of exploration and exploitation has been used in
previous research by Uotila et al. (2009), who have made a list of exploration and exploitation
related words based on the description of those terms by March in his influential work on
organizational learning from 1991.
The program QSR NVivo analyzed the uploaded annual reports based on these two lists and
delivered six different outcome variables. The first and second outcome variable it provided
was one with the total number of exploration related terms and one with a total number of
exploitation related terms found per company per year (so in fact per annual report uploaded).
For the purpose of the present study, these represent the most important and relevant items.
The third and fourth outcome variable represented the same, but in this case stated as a
percentage of the total amount of words in the annual reports. So those outcome variables
reported on the percentage of the total number of words that were related to either exploration
or exploitation. The fifth and sixth outcome variable represented the ratio of exploration terms
over the sum of exploration and exploitation terms in both actual counted terms (outcome
variable 5) and in percentages (outcome variable 6).
In keeping with research of Lubatkin et al. (2006), the additive model is used to create the
ambidexterity measure out of exploration and exploitation. Ambidexterity is modeled as the
simple sum of the items associated with both exploitation and exploration. Reason for this, is
that they empirically concluded that the additive model contains the least information loss in
aggregating exploration and exploitation into a single latent factor of ambidexterity (Simsek
et al., 2010)
25
Independent and moderating variables.
Relational Capital Quality
Indicators for this dimension are the total numbers of outside board seats board members
possess and the quality of each relation, indicated by the earnings per share of the
organization a director is connected to. Hence, the total amount of relational capital is a
function of both the quantity and quality of outside directorships. Director’s membership on
multiple boards (Kor and Sundaramurthy, 2009) serves as a proxy for outside director’s
relational capital, because current board ties can be leveraged to access information and
resources.
Generally, earnings per share are considered to be an important variable in determining
organization’s share price, which is a key indicator for profitability (Richard et al, 2009).
Firm profitability and performance are strongly related concepts and both give a clear
indication of the quality of an organization. As the quality dimension is a sub-dimension of
the already widely researched relational capital construct, the study very much builds upon
previous research.
In keeping with the research of Simsek (2009), Interlock diversity is expected to act as a
moderating variable. In doing so, the concept refers to the number of different social systems
the organization’s relations stems from. Depending on the strategic contingencies the
organization faces, having (un)related ties can help a focal firm in assessing critical
information and knowledge and adopting resources that contribute in the quest for
organizational ambidexterity. The concept of interlock diversity is composed of two
dimensions: the amount of related directorships and the amount of unrelated directorships.
The measure of relatedness adopted in the present research is in line with the method used by
Carpenter and Westphal (2001). The amount of related directorships is measured as the
number of board appointments to the board of companies in a primary business similar
(having the same three-digit Standard Industrial Classification [SIC] code) to that of the focal
organization. The amount of unrelated directorships is measured as the number of board
appointments to the board of companies in a primary business dissimilar (having another
three-digit Standard Industrial Classification [SIC] code) to that of the focal organization
26
Control Variables
The present research controls for possible confounding effects stemming from both the
internal organization and the external organizational environment. Drawing from the results
conducted by Haynes and Hillman (2010), board size (the number of directors) and the
average age of directors are included in the model. They have found that the average age of a
director predicts the board’s ability to influence the firm’s strategy. Variables relating to
board dynamics, including chair duality, using a binary variable; and board tenure, measured
as the mean of director’s tenure on the focal company’s board were also included since they
may affect the independent and dependent variables. Furthermore, Industry-Adjusted Return
on Assets, calculated at 3 digit SIC based on EBITDA, is included as a control variable.
Previous empirical findings indicate that organizational performance is significantly related to
strategic change. (Mintzberg, 1978) Prior firm performance may influence the fund available
for R&D. At the firm level, I controlled for firm size (log total assets) and R&D intensity
(R&D/Sales), since previous studies asserted that these factors significantly influence firm’s
exploitative and explorative pursuits. (Dalziel et. al, 2011)
Chapter 4 - Analyses and Results
4.1 Descriptives
In order to quantify the conceptual model adopted in the present research, this chapter
contains the analyses performed and the results that flow from this research approach. In
table 4.1 an overview is presented of the descriptives and correlations for the variables
included in the study. In total 871 observations are included, covering over 200 organizations
over a time horizon of three to five years. On average the boards in the sample were
composed of seven members. Analysis shows that the average age of a board member is 58.5
years and the average board tenure of a director is 8.9 years. Based on a 3-digit Standard
Industrial Classification (SIC) code, The Computer & Office Equipment industry was most
strongly represented in the sample group (43%). Other industry sectors that were strongly
represented were the Special Industry Machinery (18%), Construction, Mining, Materials
Handling (14%) and General Industry Machinery & Equipment (13%).
27
Table 4.1 Means, Standard Deviations and Correlations
M
ean
Std.
Dev
iati
on1
23
45
67
89
1011
12
1.A
mbi
dext
erit
y0,35
0,11
-
2.R
elat
iona
l cap
ital
qua
lity
2,63
30,60
.014
-
3.R
elat
ed d
irec
tors
hips
(3 d
igit
)
0,14
0,27
-.039
-.056
-
4.U
nrel
ated
dir
ecto
rshi
ps
(3 d
igit
)
2,26
0,85
-.060.120**
-.075*
-
5.F
irm
siz
e (l
og t
otal
asse
ts)
2,58
0,92
.022
.052
.013
.205**
-
6.R
&D
inte
nsit
y0,30
2,12
.010
-.017
.008
-.031-.192**
-
7.C
hair
dua
lity
0,78
0,42
-.066*
.013
-.015
-.021
.053
.047
-
8.In
dust
ry a
djus
ted
RO
A0,02
0,36
.033
.029
-.021
.082*
.395**
-.491**-.056
-
9.bo
ards
ize_
log
0,87
0,15
.034
.118**
-.055.171**
.589**
-.018
.080*
.220**
-
10.
Boa
rd t
enur
e_m
ean
8,96
23,00
.001
-.009
-.041
-.069*
-.107**
.008
-.007-.130**-.101**
-
11.
boar
d ag
e_m
ean
58,51
6,44
-.067*
.062
-.027.115**
-.114**
.001
-.078*
-.011
-.081*
.115**
-
12C
ompu
ter
& O
ffic
e
Equ
ipm
ent
(ref
eren
ce
grou
p)
0,43
0,50
-.025
-.075*
.357**
.030
-.114**.088**
-.002-.195**-.126**.007
-.265**
-
*. C
orre
latio
n is
sig
nific
ant a
t the
0.0
5 le
vel (
2-ta
iled)
.
**. C
orre
latio
n is
sig
nific
ant a
t the
0.0
1 le
vel (
2-ta
iled)
.
28
4.2 Analyses and results
Table 4.2 presents the results for the multiple hierarchical regression analysis for the control
variables, (un)dependent and interaction variables. The first model contains the relevant
control variables chosen for this particular study. In keeping with previous research on board
capital (e.g. Haynes and Hillman, 2010), I have controlled for confounding effects stemming
for both the internal organization and the external organizational environment. Relevant
control variables include R&D Intensity, Organization Size, Industry Adjusted Return on
Assets, Chair Duality, Board Size, Board Age and Board Tenure. Of all control variables,
chair duality and board age have a significant negative relation with organizational
ambidexterity (β= -0.089, p= 0.034 ; β = -0.076, p= 0.041).
Model two adds in the effect of relational capital quality, the main independent variable. In
doing this, the model captures the research object and was used to test the main effects. The
direct effect of interlock diversity on organizational ambidexterity is measured in model 3.
Model 4 takes into account the interaction effects of the moderating variables. The relatedness
of the outside directorship is expected to moderate the relation between relational capital
quality and organizational ambidexterity
The first hypothesis (H1) tests the main effect of relational capital quality on organizational
ambidexterity. As indicated in model two in table 4.2, the coefficient for this relation is
positive (β = 0.017), though insignificant (p = 0.630). Although there seems to be a positive
relation between the variables, based on these results it is not supported that the level
organizational ambidexterity will grow when the quality of relational capital increases. Hence,
Hypothesis 1 is not supported.
Regarding the effect of interlock diversity on organizational ambidexterity, model three
shows that the coefficient for the amount of related directorships is negative and insignificant
(β= -0.041, p= 0.278), thus not supporting Hypothesis 2(b). Furthermore, the coefficient for
the amount of unrelated directorships is negative and significant (β= -0.065, p= 0.075) and
thus not supporting Hypothesis 2(a). Overall, these findings indicate that strategically
unrelated directorships captured by the board have a negative effect on the level of
ambidexterity of the focal organization. This would mean that the involvement of directors on
other boards that are not strategically related diminishes their ability to contribute to the
strategy of the focal organization. The amount of related directorships does not have a
significant impact in fostering organizational ambidexterity.
29
The interaction effects of having strategically related and unrelated directorships on the
relation between relational capital quality and organizational ambidexterity are shown in
model four. The moderating effect of related directorships on relational capital quality is not
significant (β= -0.023, p= 0.605) and therefore not existing. However, the moderating effect
of the amount of unrelated directorships seems to be positive and significant (β= 0.160, p=
0.005).= and thus in support of Hypothesis 3a.
The results indicate that interlock diversity weakens the negative effect of relational capital
quality on organizational ambidexterity. Hence, when the board has relations with superior
performing firms, organizational ambidexterity is fostered when the amount of unrelated ties
is high. These unrelated interlocks are better sources of timely and relevant information and
contribute in attaining ambidexterity.
The interaction plot of relational capital quality with interlock diversity is presented by Figure
4.1. To plot this interaction, the value of minus one (low unrelated directorships) and one
(high unrelated directorships) were adopted in this model. It can be seen that the negative
influence of relational capital quality is positively moderated by a high amount of unrelated
directorships. It appears that having more unrelated directorships changes the nature of the
relation between relational capital quality and organizational ambidexterity. The interaction
effect results in a slightly positive relation between both variables, leading to positive
outcomes on the organizational ambidexterity construct. Whereas both variables individually
have a negative effect on organizational ambidexterity, the combination of relational capital
quality and interlock diversity leads to positive outcomes. Also the moderating impact of low
interlock diversity is clearly illustrated by this figure. It seems that low unrelated directorships
have a decreasing effect on relational capital quality.
30
Figure 4.1 The moderating effect of Interlock Diversity on Relational Capital Quality
Important in analyzing this interaction plot, is the notion that the relative moderating impact
of interlock diversity seems to be a function of relational capital quality. In case of having low
relational capital quality, organizational ambidexterity is enhanced when the firm has low
unrelated directorships. As opposed, high relational capital quality leads to more
organizational ambidexterity when the board of directors has many ties to strategically
unrelated companies.
1
1.5
2
2.5
3
3.5
4
4.5
5
Low Relational Capital
Quality
High Relational Capital
Quality
Org
an
izati
on
al A
mb
idex
teri
ty
Low Unrelated
Directorships
High Unrelated
Directorships
31
Table 4.2 Results of Hierarchical Regression Analyses: Effects on Organizational
Ambidexterity and interaction effects of Interlock Diversity
Ambidexterity
Model 1 Model 2 Model 3 Model 4
Firm size -0.018 -0.018 -0.005 -0.004
R&D intensity 0.038 0.038 0.038 0.040
Chair duality -0.890* -0.090* -0.098* -0.108*
Industry adjusted ROA 0.040 0.040 0.042 0.043
Board size 0.034 0.032 0.036 0.031
Board tenure 0.016 0.016 0.010 0.010
Board age -0.076* -0.077* -0.062* -0.065*
Relational capital quality (H1) 0.017 0.023 -0.116
Amount of unrelated
directorships (H2a)
-0.065+ -0.063+
Amount of related directorships
(H2b)
-0.041 -0.043
Amount of unrelated
directorships * Relational
capital quality (H3a)
0.160**
Amount of related directorships
* Relational capital quality
(H3b)
-0.023
R² 0.021 0.021 0.026 0.036
Δ R² 0.000 0.005 0.010*
Note, Standardized regression coefficients are reported,
*** p < 0,001, ** p < 0,01, * p < 0,05, + p < 0,1
32
Table 4.3 Results
Hypothesis Results
1. Relational Capital Quality has a positive
relationship with organizational
ambidexterity.
Not confirmed
Relational Capital Quality:
(β= 0.017; p= 0.630)
2a. The amount of unrelated directorships
has a positive relationship with
organizational ambidexterity.
Not confirmed
The amount of unrelated directorships:
(β= -0.065, p= 0.075)
Negative effect
2b. The amount of related directorships has a
negative relationship with organizational
ambidexterity.
Not confirmed
The amount of related directorships:
(β= -0.041, p= 0.278)
3a. The amount of unrelated directorships
positively moderates the relationship
between relational capital quality and
organizational ambidexterity.
Confirmed
The amount of unrelated directorships:
(β= 0.160, p= 0.005),
Positive moderating effect
3b. The amount of related directorships
negatively moderates the relationship
between relational capital quality and
organizational ambidexterity.
Not confirmed
The amount of related directorships:
(β= -0.023, p= 0.605)
Chapter 5 – Discussion and Conclusion
5.1 Discussion of the results
While a number of research studies have already advanced the concept of board capital (e.g.
Haynes and Hillman, 2010; Kor and Sundaramurthy, 2008), the present research takes a more
comprehensive approach and focuses on the actual quality of this board capital and the effects
on organizational ambidexterity. Drawing from the resource dependence theory, the study
posits that the amount and quality of relational capital, depends on the quality of the
organizations directors have ties to. Directors with ties to better performing companies are
expected to bring in more valuable and timely information and resources as opposed to
directors who are involved in the boards of organizations that perform relatively poor.
33
Directors linked to well-performing organizations can be expected to have superior insights
and ideas on how to tackle seemingly contradictory strategic tensions and/or are likely to have
successfully coped with similar challenges in the past at other firms.
Based on the analysis of statistical results, only one of the hypotheses was supported.
Whereas the main effect of relational capital quality seems to be non-existing in the dataset,
some interesting results can be seen. Especially the strategic context of interlocking
directorships appears to be an important factor in the process of becoming ambidextrous.
Interestingly, whereas the amount of related directorships does not significantly impact the
level of ambidexterity in any way, the amount of unrelated directorships seems to be of
critical value in fostering organizational ambidexterity. Analyzing the results from a practical
point of view, the current chapter elaborates on the results. Furthermore, the chapter provides
an overview of the contributions and limitations of the present research.
The research focused on the influence of relational capital quality on organizational
ambidexterity and the moderating impact that interlock diversity has on it. As already
emphasized, current literature does not provide an empirically tested operationalization of
relational capital quality. In building this new theory, I integrated the ideas of board capital
studies (Hilllam and Dalziel, 2003; Haynes and Hillman, 2010) network theories (Simsek,
2009; Datta, 2011; Wincent et al, 2010), and literature on organizational ambidexterity (e.g.
Benner & Tushman, 2003; Raisch et. al, 2009). In doing so, it was hypothesized that relational
capital quality would have a positive influence on the process of fostering organizational
ambidexterity. An extensive network of relations to better performing organizations suggests
that a board has access to information of quality and potential value to the organization.
(Collins and Clark, 2003) As such, the board has better insights of the organization’s
exploitative and explorative needs and options (Simsek et al, 2009), so that they can properly
mobilize resources in support of ambidexterity pursuits. (Sparrawe et al, 2001) The ability of
directors to gain access to relevant resources is viewed as depending upon their relationships
within the corporate network. Results however showed an insignificant (positive) relation,
indicating that the quality of the network does not have consequences for the level of
organizational ambidexterity. As an individual factor, the quality of relational capital does not
have any foundation. Obviously, improving the quality of the relations held by directors
doesn’t necessarily influence the quality of the resource and information streams gained in a
way that is it beneficial for ambidexterity pursuits.
34
Concerning the direct effect of interlock diversity, the results are twofold. The amount of
related directorships does not bear any relation to the level of organizational ambidexterity
attained. Based on the article by Datta (2011), it was hypothesized that high amounts of
related directorships would have a negative impact on the process of becoming ambidextrous.
In the situation of low interlock diversity, the board has little opportunities to consider
multiple perspectives and thus is likely to consider a narrower way of options and strategies.
(Haynes and Hillman, 2010). As Haynes and Hillman state: “The strategic actions
recommended and approved by the board will thus compel the organization to take strategic
actions similar to the ones in the industry, increasing the conformity to industry norms.” From
an ambidexterity-point-of-view, low interlock diversity may lead to a preference for the status
quo due to the success-trap. The strategic decisions of the board will reflect the dominant
strategy patterns of the industry.
Regarding the amount of unrelated directorships however, findings suggest a negative
influence on organizational ambidexterity. These findings are not consistent with previous
perspectives on the role of interlock diversity (e.g. Datta, 2011; Simsek, 2009). These studies
show that interlock diversity affords the organization multiple benefits from the perspectives
of attaining ambidexterity. Interlock diversity can be expected to have beneficial
consequences for an organization’s problem-solving arsenal. In doing so, diverse network ties
enforce firms to overcome problems associated with the familiarity and propinquity trap.
Based on these insights, it was hypothesized that higher amounts of unrelated directorships
would have a positive influence on the level of ambidexterity attained. The seemingly
negative relationship between interlock diversity and organizational ambidexterity can be
explained by the study of Katila and Ahuja (2002). They state that an increase in diversity
might dynamically increase costs of integrating streams of knowledge into the organization’s
current knowledge base, making it harder to exploit synergies across them. Reasoning from
this, an increase in interlock diversity may lead to a situation in which exploration drives out
exploitation due to low or inexistent pay-offs.
Most prominent outcome of this paper is the moderating effect of interlock diversity on the
relation between relational capital quality and organizational ambidexterity. Results showed
that this effect was positive, indicating the importance of interlock diversity captured by the
board of directors. High amounts of unrelated directorships help to overcome the seemingly
negative effects associated with high levels of relational capital quality. The following was
found concerning the interaction effect of interlock diversity. First, the findings suggest that
35
the moderating role of interlock diversity is twofold. Whereas strategically related
directorships do not seem to be an accurate proxy for interlock diversity, the regression
analysis indicates that having unrelated interlocks both directly and indirectly appears to be of
influence in the process of becoming ambidextrous. Initially, the quality of relational capital
does not bear any significant relationship with the amount of ambidexterity pursued. The
moderating influence of interlock diversity changes both the direction and significance of the
relation between relational capital quality and organizational ambidexterity.
Second, regarding the influence on the direction of the relation between the dependent and
independent variable, it appears that high interlock diversity has a positive influence on
organizational ambidexterity. Although positive, the moderating effect of high interlock
diversity is minimal compared to the negative moderating effect of low interlock diversity.
Therefore, the relative impact of interlock diversity seems to be a function of the quality of
relational capital captured by the board of directors. Board ties with well-performing firms
will only stimulate the pursuit of ambidextrous corporate strategies, when the amount of
unrelated directorships is high. Directorships in poorer performing companies will have a
positive influence on organizational ambidexterity when the quantity of unrelated board ties is
low. Altogether it can be concluded that the amount of unrelated directorships acts as a
substitute for the seemingly negative effects of relational capital quality.
Third, building on the abovementioned relative impact of interlock diversity, the results of the
present research clearly point to the direction of two distinct situations in which different
network structures lead to an optimal outcome on the ambidexterity construct. When a
organization is able to capture a high level of relational capital quality through its board of
directors, a higher level of organizational ambidexterity is realized when the amount of
unrelated directorships are high. At the other hand these findings imply that when the quality
of relational capital is low, diversity of interlocks held by directors plays a key role in
attaining organizational ambidexterity. It appears that low unrelated directorships lead to
positive outcomes on the ambidexterity level.
The resource-dependence lens adopted in this paper asserts that the need for environmental
linkages is a direct function of the levels and types of dependence facing an organization.
(Hillman et al., 2000) In order to secure competitive advantage, boards aim to provide scarce
resources and relationships. In doing so, directors fulfill a resource-providing function.
Obviously for firms in the sample, broader connectivity with key contacts, such as suppliers,
36
customers and competitors appears to have drawbacks for attaining ambidexterity. It appears
that diminishing returns will be realized, when the network size is too large. The large
quantities of information originating from diverse sources can overload an organization’s
information processing capacity. (Datta, 2011) Furthermore, due to their broad connectivity,
directors can spend limited amount of time and attention to the focal firm’s strategic issues.
All the above leads to the notion that having ties to superior performing contacts in business
environments other than the Industrial Machinery and Equipment industry, does the pursuit of
both exploration and exploitation strategies. It seems that inter-industry directorships only
lead to more ambidextrous strategies when the firms’ directors have ties to perform well.
From an ambidexterity point of view, board’s influence is most prominent when the firms
they provide access to are mostly intra-industry concentrated. Nonetheless, whether and by
how much the organization might capitalize on such diverse opportunities, might be
dependent on their ability to create an optimal balance between relational capital quality and
interlock diversity.
5.2 Contributions
Contributions to theory
Conducting this research served both academic and managerial objectives and contributed
both conceptually and empirically to existing literature. In doing so, results of this study
created deeper understanding of the ambidexterity construct and created insights on the
influence that relational capital quality has on it.
The conceptual contribution of the present research lies in the introduction and
operationalization of the relational capital quality construct. Despite the broad range of
disciplines involved in investigating the board of directors, up till now the concept of
relational capital quality remained under-explored. In response to this disparity, the paper’s
key contribution lies in developing a more comprehensive theoretical model that hypothesizes
how the relational capital of the board can lead to different impacts on organizational
ambidexterity.
Empirically, due to the longitudinal research design used and quantitative analysis adopted,
the study brings in new insights to current literature on exploration, exploitation and
ambidexterity by investigating whether a relation can be found between relational capital
quality and organizational ambidexterity. Currently, there is a lack of understanding what
37
factors influence organizational ambidexterity. Whereas current theories already elaborate on
the role of executives (e.g. CEO and TMT), much less is known of the role of non-executives
in creating an ambidexterity corporate climate. Therefore this research added understanding to
the various antecedents of organizational ambidexterity
Furthermore, the study contributes to the network theory by advancing the concept of
interlock diversity. Research on this matter (Simsek, 2009; Phelps, 2010; Datta, 2011),
positively connects the concept of interlock diversity with the pursuit of organizational
ambidexterity. This study showed that interlock diversity doesn’t necessarily enhance the
pursuit of organizational ambidexterity. An important contributing finding is the fact that the
amount of diverse board ties substitutes for the effects stemming from relational capital
quality. The amount of unrelated ties should thus be adjusted to the quality of relational
capital.
Contributions to management practice
The main managerial objective of this research lies in the fact that over the last decades the
relative importance of and critique on the functioning of non-executive directors has been
growing. By conducting this research, new insights have been gained on the concept of board
capital in relation to the pursuit of ambidexterity. As such, the present research provides
insights for non-executives, executives and organizations as a whole. The contributions of this
research, increase the ability of a board of directors to contribute to organizational
ambidexterity and thus to the creation of competitive advantage. Therefore, the research
might increase a organization’s ability to realize organizational ambidexterity.
The present findings showed that boards should focus on creating an ultimate balance
between relational capital quality and interlock diversity in composing their formation.
Especially when relational capital is gained from qualitatively poorer performing companies,
strategic relatedness appears to be a key concept in the quest of becoming ambidextrous.
5.3 Future Research
Whereas the research makes several contributions to the ambidexterity and board capital
literature, the study has limitations as well. First, the research is conducted in a longitudinal
design. Due to time and size boundaries, the quantitative study does have some
methodological limitations. The sample of 203 organizations might be too little to generalize
the findings. Moreover, as the research is only focusing on listed organizations, it neglects
38
small and medium sized organizations. Another methodological limitation can be found in the
use of secondary (hard) data. Whereas the data is publicly available and thus analyzable, it
doesn’t contain soft elements. These soft data might be fruitful to get a complete sense of the
conceptual outcomes of the present study.
Second, the present research basically builds on previous theories on board capital (Hillman
and Dalziel, 2003; Haynes and Hillman (2010). As they already mentioned, strategic change
as such may not represent the best context to examine effects of board capital breadth and
depth. Although this research focuses on the concepts of exploitation and exploration, by
Andriopoulos and Lewis (2009) referred to as necessary for gaining competitive advantage,
the research doesn’t directly focus on the board capital-performance relation as proposed by
Haynes and Hillman (2010). Future research could test the proposed relation with the
conceptual model developed in this study.
Third, to be able to develop the new theory on relational capital quality, new scales were
introduced. Existing theories did not provide any empirically tested operationalization of
relational capital quality. Hence, theories had to be developed based on the bundling of
empirical insights combined with personal perspectives. Future research can use these newly
developed dimensions and further develop them into a more established measurement.
Fourth, the study does not incorporate any soft elements in analyzing board’s contribution to
strategy. Based on the argument that the boards of directors are small groups, they are subject
to certain social and psychological influences (Petrovic, 2008). However these dynamics,
such as task/cognitive conflict, relationship conflict and board cohesiveness, do have
implications for the effectiveness of the board. Therefore, future research might incorporate
these softer elements of relational capital, since it is likely that these elements have an impact
on the quality of information sharing between board members (Simsek et al., 2009)
Fifth, as the present study focused on the relational aspect of the board capital construct, the
concept of human capital was excluded from this study. Whereas this focus on relational
capital helped to gain better insights on the role of director’s network on attaining
organizational ambidexterity, it might be interesting for future research to extend the present
research and include the quality of human capital as well. Bringing together both the quality
of human and relational capital in the pursuit for ambidexterity will ultimately generate a
complete understanding of director’s ability to contribute to the strategic repertoire of a focal
firm.
39
Conclusion
While there is general scholarly and managerial consensus that boards of directors play a vital
role in influencing firm performance by providing access to relevant resources and
knowledge, this article shows another perspective on the influence of directors. In developing
a more comprehensive theoretical model, this research highlights the important role that the
board of directors has in fostering organizational ambidexterity. Drawing from the ideas put
forward in the resource dependency theory, it is confirmed that board capital is an useful
resource for firms, with social ties providing the opportunity for firms to deviate from both
previous strategies and industry norms. In doing so, the research model refines when board
diversity can be beneficial and when it can become a threat in the quest for ambidexterity. In
the quest for organizational ambidexterity, whether and by how much the organization might
capitalize on diverse opportunities, might be dependent on their ability to create an optimal
balance between relational capital quality and interlock diversity. Both seem to be antecedents
of organizational ambidexterity and appear to be important concepts in facing modern world’s
challenges.
40
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