The Influence of Intellectual Capital on the Types of Innovative Capabilities

௠ Academy of Management Journal 2005, Vol. 48, No. 3, 450–463.

THE INFLUENCE OF INTELLECTUAL CAPITAL ON THE TYPES OF INNOVATIVE CAPABILITIES

MOHAN SUBRAMANIAM Boston College

MARK A. YOUNDT Skidmore College

We examined how aspects of intellectual capital influenced various innovative capabilities in organizations. In a longitudinal, multiple-informant study of 93 organizations, we found that human, organizational, and social capital and their interrelationships selectively influenced incremental and radical innovative capabilities. As anticipated, organizational capital positively influenced incremental innovative capability, while human capital interacted with social capital to positively influence radical innovative capability. Counter to our expectations, however, human capital by itself was negatively associated with radical innovative capability. Interestingly, social capital played a significant role in both types of innovation, as it positively influenced incremental and radical innovative capabilities.

It is widely accepted that an organization’s capa- knowledge and innovation is on the whole per- bility to innovate is closely tied to its intellectual suasive, more remains to be understood about its capital, or its ability to utilize its knowledge re- precise nature. It is known, for instance, that organ- sources. Several studies have underscored how izations adopt different approaches for accumulat- new products embody organizational knowledge ing and utilizing their knowledge and that these (e.g., Stewart, 1997), described innovation as a approaches manifest themselves as distinct aspects knowledge management process (e.g., Madhavan & of intellectual capital—namely, human, organiza- Grover, 1998), and characterized innovative com- tional, and social capital (Davenport & Prusak, panies as knowledge creating (e.g., Nonaka & 1998; Nahapiet & Ghoshal, 1998; Schultz, 1961). Takeuchi, 1995). So close are the ties between re- Research has also delineated the differences be- search on knowledge and research on innovation, tween incremental and radical innovative capabil- in fact, that in recent years scholars have seen a ities (Abernathy & Clark, 1985) and noted that they blurring of the boundaries between these areas. It is vary in the kinds of knowledge they draw upon now quite common for studies examining innova- (Cardinal, 2001). Yet the finer aspects of how tion to use knowledge or intellectual capital as organizational knowledge gets accumulated and antecedents, and studies investigating knowledge utilized remain unconnected to the specific types and intellectual capital frequently use innovation of innovative capabilities organizations possess, as outcomes (e.g., Ahuja, 2000; Dougherty, 1992; with most studies only linking knowledge to very Subramaniam & Venkatraman, 2001; Tsai & generic, broadly defined innovation outcomes (e.g., Ghoshal, 1998). new product introductions, technology patents, Although the basic link between organizational sales generated from new products). This gap in understanding is of concern given that organizations invest significant resources to develop their We thank Liam Fahey, Robert Fichman, Marta Gelet- intellectual capital, often with a strategic need to kanycz, Luis Martins, Hossein Safizadeh, Huseyin Tan- enhance select types of innovative capabilities riverdi, and N. Venkatraman for their comments on an (Tushman & O’Reilly, 1997). earlier version of this paper, Thomas Lemon for his as- Our study is an attempt to address this issue and sistance in compiling the mailing list, and Adrienne therefore refine and extend comprehension of the Freeman-Gallant for her statistical consultation. Addi- knowledge-innovation link. To do so, we draw tionally, the comments and suggestions of the editor and three reviewers greatly improved the overall quality of upon and synthesize insights from prior studies the final paper. We also are grateful for research support that have examined distinct aspects of intellectual from Boston College in the form of research expense capital (human, organizational, and social capital) grants and a faculty fellowship awarded to the first and different types of innovative capabilities (in- author. cremental and radical) in an effort to develop new

450 2005 Subramaniam and Youndt 451 insights surrounding their intrinsic connections. Aspects of Intellectual Capital: Conceptualization More specifically, from studies on intellectual and Definitions capital, we construe how human, organizational, Several studies designating an organization’s and social capital enable organizations to either knowledge resources as its intellectual capital have reinforce or transform their prevailing knowl- underscored the notion that knowledge is utilized edge. Similarly, from studies on innovation, we through different approaches in an organization. infer how incremental and radical innovative ca- The authors of these studies consider intellectual pabilities require drawing upon knowledge in capital to be the sum of all knowledge firms utilize fundamentally different ways—incremental infor competitive advantage (Nahapiet & Ghoshal, novative capabilities requiring the reinforcing of 1998; Youndt, Subramaniam, & Snell, 2004). More prevailing knowledge, and radical innovative ca- importantly, it is the conceptualization of different pabilities requiring the transforming of prevail- aspects of intellectual capital that offers scholars a ing knowledge. Synthesizing these insights, we means to parsimoniously synthesize the ap- develop a research framework that conceptually proaches by which knowledge is accumulated and delineates and can empirically test how different used in organizations. Previous research has iden- aspects of intellectual capital and their interrela- tified three prominent aspects of intellectual capi- tionships selectively influence different types of tal: human, organizational, and social capital. Hu- innovative capabilities. man capital is defined as the knowledge, skills, and abilities residing with and utilized by individuals (Schultz, 1961), whereas organizational capital is the institutionalized knowledge and codified expe- rience residing within and utilized through data- CONCEPTUAL BACKGROUND bases, patents, manuals, structures, systems, and Innovation is intrinsically about identifying and processes (Youndt et al., 2004). The third aspect, using opportunities to create new products, ser- social capital, is defined as the knowledge embed- vices, or work practices (Van de Ven, 1986). Knowl- ded within, available through, and utilized by in- edge helps organizations achieve these objectives, teractions among individuals and their networks of as opportunities get noticed and exploited because interrelationships (Nahapiet & Ghoshal, 1998). of asymmetries in knowledge across organizations At a basic level, the conceptual separation of (Hargadon & Sutton, 1997). Not surprisingly, the these three aspects of intellectual capital is evident process of innovation is commonly equated with an from how each aspect accumulates and distributes ongoing pursuit of harnessing new and unique knowledge differently: either through (1) individu- knowledge (Nonaka & Takeuchi, 1995). als, (2) organizational structures, processes, and A critical portion of the knowledge and skills systems, or (3) relationships and networks. Other required for innovation resides with and is used by key attributes, however, further highlight their inherent differences. For example, the distinction be- individuals. The complexity of many modern inno- tween human and organizational capital is most vations, however, necessitates a pooling and inte- telling in Daft and Weick’s observation: “Individu- gration of multiple strands of this knowledge. As als come and go, but organizations preserve knowl- Van de Ven observed, “While the invention or con- edge. . .over time” (1984: 285). That is, individual ception of innovative ideas may be an individual expertise and its associated human capital may or activity, innovation (inventing and implementing may not stay within organizations and can change new ideas) is a collective achievement” (1986: 591). depending on the hiring, mobility, and turnover of Thus, organizations accumulate, codify, and store employees. Conversely, institutionalized knowl- individual knowledge in manuals, databases, and edge and its associated organizational capital stay patents for collective current and future use (Garud within organizations and do not change very easily & Nayyar, 1994) and establish robust structures, (Walsh & Ungson, 1991). As for social capital’s systems, and processes (such as new product de- preservation, it tends to function more like organi- velopment teams and formal product-planning pro- zational capital than human capital. Yes, social cesses) to streamline individual inputs into steady capital comprises a network of individuals who streams of innovative outcomes (Cooper, 2001). Or- each have the option to leave their organization, ganizations also assimilate and integrate knowl- but it is rare that this individual mobility com- edge by facilitating its communication, sharing, pletely destroys the viability of the overall network. and transfer among individuals and by encouraging Since social capital stems from norms for collabo- interactions in groups and networks (Allen, 1977). ration, interaction, and the sharing of ideas (Put- 452 Academy of Management Journal June nam, 1995), it tends to be largely preserved within (social capital). Thus, these different aspects of in- organizations irrespective of changes in specific tellectual capital both individually and jointly de- individual actors (Bourdieu, 1985). ploy organizational knowledge. Although social capital may be similar to organi- Since innovations essentially draw upon such zational capital (and also unlike human capital) deployed knowledge, finding an association be- with regard to its institutionalization and preserva- tween various aspects of intellectual capital and an tion within organizations, it differs from organiza- organization’s generic capability to innovate would tional capital in terms of the flexibility by which hardly be surprising. However, given that these knowledge is utilized. By its very nature, organiza- aspects of intellectual capital accumulate and pro- tional capital is codified, and its creation, preser- cess knowledge differently, it is possible that each vation, and enhancement occur through structured, of them and their interrelationships may influence repetitive activities (Nelson & Winter, 1982). Such an organization’s innovative capabilities in differ- codification is manifested in the various manuals, ent ways. To better understand these influences,, databases, and patents that organizations use to we turn to the distinctions among different types of accumulate and retain knowledge. It also is re- innovative capabilities. flected in an organization’s time-honored structures and processes, or clearly mandated proce- Types of Innovative Capabilities: dures and rules for retrieving, sharing, and utilizing Conceptualization and Definitions knowledge. Information exchanges made as part of these established structures and processes thus The most established classification of innovation tend to follow well-established and codified guide- distinguishes it as incremental or radical (Dewar & lines. Consequently, knowledge intrinsic to organi- Dutton, 1986). Incremental innovations refine ex- zational capital tends to be bounded within set isting products, services, or technologies and rein- parameters and scripted to be accumulated and force the potential of established product/service utilized in established ways (Brown & Duguid, designs and technologies (Ettlie, 1983). Accord- 1991). In contrast, an inherent characteristic of ingly, incremental innovative capability is defined knowledge associated with social capital is its evo- as the capability to generate innovations that refine lution through interactions among individuals or and reinforce existing products and services. Rad- groups who tend not to follow predetermined rules ical innovations, on the other hand, are major trans- and procedures to access, share, or transact infor- formations of existing products, services, or tech- mation. Knowledge is consequently not bounded nologies that often make the prevailing product/ within predetermined parameters, is unscripted, service designs and technologies obsolete (Chandy and is accumulated and utilized as a function of the & Tellis, 2000). Thus, radical innovative capability shifting contours of relationships and interactions is the capability to generate innovations that signif- in a network (Burt, 1992). More fundamentally, icantly transform existing products and services. social capital exemplifies flexible conduits for the The underlying distinctions in incremental and sharing and exchange of knowledge and hence acts radical innovative capabilities are further evident as a facilitator to strengthen how human and or- in how differently they draw upon organizational ganizational capital are leveraged in organizations knowledge. As Gatignon, Tushman, Smith, and (Kostova & Roth, 2003). Anderson (2004: 1107) observed, incremental inno- A natural outcome of these various differences is vations involve “improving and exploiting an ex- that each of these aspects of intellectual capital isting technological trajectory,” whereas radical in- requires unique kinds of investments (Youndt et novations “disrupt an existing technological al., 2004): human capital requiring the hiring, train- trajectory.” Similarly, Abernathy and Clark noted ing, and retaining of employees; organizational that incremental innovations “build on and rein- capital requiring the establishment of knowledge force the applicability of existing knowledge,” storage devices and structured recurrent practices; while radical innovations “destroy the value of an and social capital requiring the development of existing knowledge base” (1985: 5). Thus, incre- norms that facilitate interactions, relationships, mental innovative capabilities draw upon rein- and collaboration. Despite these fundamental dif- forced prevailing knowledge, with consequent in- ferences, however, the various aspects of intellec- novations taking advantage of and improving upon tual capital are not always found in organizations prevailing knowledge, whereas radical innovative in neat, separate packages. For example, individual capabilities draw upon transformed prevailing knowledge (human capital) often becomes codified knowledge, with innovations making prevailing and institutionalized (organizational capital) and is technologies obsolete and “morphing” old knowl- transferred and leveraged in groups and networks edge into something significantly new. 2005 Subramaniam and Youndt 453

These distinctions in how different types of in- path-dependent trajectory of reinforced knowledge novative capabilities draw upon knowledge that is (Cohen & Levinthal, 1990; Daneels, 2002). either reinforced or transformed provide an a priori Such institutionalization of an organization’s basis for systematically linking them to the various means to preserve knowledge and the mechanisms aspects of intellectual capital and their interrela- to use it recurrently is most evident in its organi- tionships. At the heart of this basis is the premise zational capital. The hallmarks of organizational that the various aspects of intellectual capital and capital include reliance on manuals, databases, pat- their interrelationships, by accumulating and me- ents, and licenses to codify and preserve knowl- diating knowledge differently, enable organizations edge, along with establishment of structures, pro- to draw upon knowledge in distinct ways. The cesses, and routines that encourage repeated use of nature of this link, however, needs to be further this knowledge (Hansen, Nohria, & Tierney, 1999). delineated and empirically verified, an effort that is Thus, we expect organizational capital to enhance the focus of our current research. the reinforcing of prevailing knowledge and thereby influence an organization’s incremental innovative capabilities. RESEARCH FRAMEWORK Hypothesis 1. The greater the organizational The underlying rationale for our framework is capital in organizations, the higher their incre- that inherent differences in the key attributes of mental innovative capability. human, organizational, and social capital cause By and large, established processes and routines each of them to have a particular reinforcing or leveraging an organization’s preserved knowledge transforming influence on knowledge. However, tend to run on their own, often steering knowledge these influences are not always isolated, given that evolution in directions that the organization may human, organizational, and social capital are often find it difficult to rein in or change (Nelson & intertwined in organizations. Thus, their interrela- Winter, 1982). However, the strength of an organi- tionships also play an important role in shaping zation’s preserved knowledge and the intrinsic these influences. Accordingly, we rooted our re- worth of the trajectory it takes can be expected to search framework in the premise that human, improve with the quality of the interactions, rela- organizational, and social capital—either inde- tionships, and collaborations among groups of in- pendently or through their interrelationships— dividuals who operate with this preserved knowl- reinforce or transform knowledge to selectively edge. Groups play a substantial role in deploying influence incremental and radical innovative knowledge within organizations (Nonaka, 1994), capabilities. and the quality of group work and teams most likely not only improves how an organization’s codified knowledge in patents, databases, and li- Reinforcing Prevailing Knowledge for censes is leveraged, but also improves how these Incremental Innovative Capabilities knowledge sources are updated and reinforced. An organization’s preserved knowledge influ- Similarly, structured processes, such as new prod- ences its propensity to reinforce its knowledge. Pre- uct development projects that harness and rein- served knowledge tends to be used in structured, force organizational knowledge, clearly benefit recurrent activities and is generally perceived to be from rich exchanges of information and collabora- more reliable and robust than other knowledge (Ka- tion among a project’s team members (Subrama- tila, 2002). Consequently, it biases an organiza- niam & Venkatraman, 2001). tion’s problem-solving activities to focus on what An organization’s social capital enhances the has previously proved useful (Lyles & Mitroff, quality of group work and the richness of informa- 1980) and on areas closely related to preexisting tion exchange among team members. Social capital knowledge (Martin & Mitchell, 1998). For instance, is epitomized in how it facilitates interactions and the domains of knowledge in which organizations the exchange of ideas. Thus, social capital most pursue fresh patenting activities are known to likely assists in the iterative process of knowledge closely follow and converge on the domains of reinforcement by enabling groups not only to effi- knowledge of their existing patents (Stuart & ciently draw upon prevailing knowledge, but also Podolny, 1996). Moreover, when organizations har- to refine the evolving body of this knowledge. ness their preserved knowledge through structured Hence, we expect social capital to augment organi- recurrent activities, they deepen their knowledge zational capital’s role in reinforcing knowledge and and further legitimize its perceived value (Katila & thereby strengthen organizational capital’s influ- Ahuja, 2002). Eventually, such processes create a ence on incremental innovative capabilities. 454 Academy of Management Journal June

Hypothesis 2. The greater the social capital in Individuals and their associated human capital organizations, the stronger the influence of or- may encourage the questioning of prevailing norms ganizational capital on incremental innovative and originate new ways of thinking, but their capability. unique ideas often need to be tied to one another for radical breakthroughs to occur. Hargadon and Sutton (1997) described the process of combining Transforming Prevailing Knowledge for Radical previously unconnected ideas as “brokering,” sug- Innovative Capabilities gesting that making unconventional connections An organization’s access and exposure to a vari- between disparate understandings is as important ety of new and alternate knowledge domains influ- in developing radical innovations as is having di- ence its propensity to transform knowledge. Rather verse ideas. Moreover, even when individuals than relying on preserved knowledge for problem come up with breakthrough ideas, their contribu- solving, knowledge transformation requires questions most likely need to gain recognition, dissem- tioning prevailing norms and looking for funda- ination, and currency for their impact to be maxi- mentally different solutions to existing problems mized. A variety of studies have highlighted how (Tushman & Anderson, 1986). Access and exposure social networks assist the acceptance of individu- to diverse knowledge domains enlightens organiza- als’ radical ideas within broad organizational or tions about new ways by which existing problems industry settings. Research on “product champi- can be solved (Rosenkopf & Nerkar, 2001). As dif- ons,” for example, has emphasized the significance ferent technologies often stem from sciences with of networking and lobbying within organizations unique premises and often have vastly differing for facilitating the acceptance and implementation logics for their inner workings, the more an organi- of radical innovations (Scho¨n, 1963). Similarly, re- zation gets exposed to the premises behind new search on “dominant designs” has suggested how knowledge domains, the less unilaterally valid and relationships and networks developed across or- attractive its preserved knowledge appears (Ahuja ganizations are critical to industry-wide acceptance & Lampert, 2001). Organizations consequently be- of new standards arising from revolutionary ideas gin to question the premises behind prevailing (Tushman & Murmann, 1998). Through strong ties knowledge and broaden their repertoires of prob- with suppliers and distributors, for instance, or- lem-solving approaches, thereby increasing their ganizations can influence the adoption of radical likelihood of transforming prevailing knowledge. technologies, increase the installed base of their The propensity for access and exposure to di- innovations, and augment the penetration and es- verse knowledge domains is most likely seen in an tablishment of new standards (Schilling, 1998). organization’s human capital. The hallmarks of hu- Ties and links that encourage the sharing of in- man capital are creative, bright, skilled employees, formation and know-how among a wide range of with expertise in their roles and functions, who individuals are key attributes of social capital. constitute the predominant source for new ideas Such attributes further facilitate human capital’s and knowledge in an organization (Snell & Dean, role in transforming prevailing knowledge. While 1992). It is in these individuals that organizations human capital provides organizations with a plat- not only find the greatest repertoires and diversity form for diverse ideas and thoughts, social capital of skills (Hayek, 1945), but also the most flexibility can help connect them to make unforeseen and in acquiring new skills (March, 1991). Further- unusual combinations for radical breakthroughs. more, it is these bright and skilled employees who Moreover, social capital also encourages collabora- are most likely to question prevailing norms in tion both within and across organizations. In doing organizations (Tushman & Anderson, 1986). Ac- so, it can help individuals not only establish legit- cordingly, individuals and their associated human imacy for their revolutionary ideas within organi- capital are crucial for exposing an organization to zations, but also enable organizations to orchestrate technology boundaries that increase its capacity to widespread adoption of radical breakthroughs. absorb and deploy knowledge domains (Hill & Hypothesis 4. The greater the social capital in Rothaermel, 2003). Therefore, we expect human organizations, the stronger the influence of hu- capital to enhance the transformation of prevailing man capital on radical innovative capability. knowledge and thereby influence an organization’s radical innovative capabilities. METHODS Hypothesis 3. The greater the human capital in organizations, the higher their radical innova- We collected data for this longitudinal study tive capability. through a combination of questionnaires and sec- 2005 Subramaniam and Youndt 455 ondary sources. Different key informants were used independent variables and 35 for the dependent for obtaining survey information for the indepen- variables) to ensure the clarity of the questions and dent (intellectual capital) and dependent variables to ascertain whether or not the scales were captur- (innovative capabilities). Data for all except one of ing the desired information; we then refined and the control variables were collected through sec- modified the scales on the basis of the pilot-test ondary sources. feedback. Intellectual capital. The five items assessing human capital were based on the original discussions Sample surrounding human capital (Schultz, 1961) as well We included a broad group of organizations and as on contemporary strategic human resource man- industries to maximize variation of the variables as agement studies (Snell & Dean, 1992), and they well as to increase the generalizability of the find- reflected the overall skill, expertise, and knowledge ings. However, we included only public, single- levels of an organization’s employees. Likewise, business-unit organizations with more than 100 organizational capital was measured with a four- employees because (1) intellectual capital, innova- item scale assessing an organization’s ability to ap- tive capabilities, and competitive strategies may propriate and store knowledge in physical organi- differ across autonomous business units in multidi- zation-level repositories such as databases, visional organizations; (2) the study required com- manuals, and patents (Davenport & Prusak, 1998) prehensive organization-level performance data for as well as in structures, processes, cultures, and control purposes; and (3) organizations with more ways of doing business (Walsh & Ungson, 1991). than 100 full-time employees are more likely to And lastly, the five items measuring social capital have somewhat formalized R&D and innovation drew upon the core ideas of the social structure systems. We selected 919 organizations meeting literature (Burt, 1992) as well as on the more spe- these criteria from the U.S. Directory of Corporate cific knowledge management literature (Gupta & Affiliations. Govindarajan, 2000); these items assessed an or- As this was a longitudinal study, data collection ganization’s overall ability to share and leverage occurred in two different time periods. In 1998, a knowledge among and between networks of em- questionnaire assessing the organizations’ human, ployees, customers, suppliers, and alliance part- organizational, and social capital was mailed di- ners. The Appendix gives the texts of our 14 items. rectly to the two highest-ranking executives (usu- Innovative capability. Our measures for the two ally the CEO and president) and the vice president types of innovative capabilities were based on the of human resources in each of the 919 organiza- discussions provided by Tushman and Anderson tions. Executives from 208 of the organizations re- (1986) and Henderson and Clark (1990). Incremen- turned usable questionnaires, a number represent- tal innovative capability was measured with a ing a response rate of 23 percent. Approximately three-item scale assessing an organization’s capa- three years later we mailed another questionnaire bility to reinforce and extend its current expertise to the vice president/director of marketing and vice and product/service lines. Similarly, radical inno- president/director of R&D of the same 208 organi- vative capability was measured with a three-item zations to assess their incremental and radical in- scale assessing an organization’s capability to novative capabilities. Ninety-three executives re- make current product/service lines obsolete. (See sponded to this second wave of data collection, for the Appendix). a 44 percent response rate. These 93 organizations Organizational environment controls. Numer- represented 54 four-digit SIC codes, had an average ous organizational factors beyond intellectual cap- of 3,929 employees, and had mean annual revenues ital may influence innovative capabilities. For ex- of $689 million. An analysis of respondents and ample, large organizations may be more likely to nonrespondents showed no differences in industry develop innovative capabilities owing to their ex- membership, number of employees, and revenues. tensive resource bases (Henderson & Cockburn, 1994); however, smaller organizations may be more innovative owing to their flexibility (Cohen, 1995). Measures Thus, we controlled for any extraneous effects of As our study spanned many industries, we organization size. Size was measured as the natural crafted generalizable, multi-item scales (using a logarithmic transformation of the number of full- seven-point Likert format) for each of our con- time employees, which was obtained from the Di- structs, tapping core conceptual attributes devel- rectory of Corporate Affiliations. We also ac- oped by prior research. We pilot-tested all mea- counted for R&D spending in our analysis, as sures with executive MBA students (33 for the innovation is the intended outcome of most R&D 456 Academy of Management Journal June efforts (Cohen, 1995). R&D spending was calcu- Data for industry measures were obtained from the lated as an organization’s yearly R&D expenditures U.S. Industrial Outlook, StatUSA, the Census of Man- divided by its annual sales. Data on R&D spending ufacturers, and Moody’s Industrials. were obtained from two databases, Disclosure and Bloomberg. Additionally, we controlled for Measurement Properties whether the innovations in question were product- or service-based, as certain innovations may lend Using LISREL 8.54, we conducted confirmatory themselves more to products than services, or vice factor analysis (CFA) of the three aspects of intel- versa. We measured product- or service-based in- lectual capital and the two types of innovative ca- novation by asking respondents1 to focus their re- pabilities. Overall, the CFA results suggested that sponses on either product innovations or service the intellectual capital model provided a moderate innovations, depending on in which area most of fit for the data and that the innovative capability their companies’ innovations had occurred during model provided a good fit for the data. More spe- the last five years. Then we entered this categorical cifically, both models had chi-squares less than variable (0 ϭ “product,” 1 ϭ “service”) in our anal- three times their degrees of freedom (intellectual yses. Lastly, we controlled for prior performance, capital, 133.54/48 ϭ 2.78; innovative capabilities, as associated slack resources in organizations could 16.29/8 ϭ 2.04). Additionally, the CFA fit indexes influence their innovative capabilities (Hill & Roth- exceeded the levels suggested by Bentler and Bon- aermel, 2003). We chose to utilize two financial nett (1980) (intellectual capital: comparative fit in- returns, return on equity (ROE) and return on assets dex [CFI] ϭ .91, incremental fit index [IFI] ϭ .92, (ROA), because they represent resources available goodness-of-fit index [GFI] ϭ .87; innovative capa- for reinvestment in a firm. More specifically, we bilities: CFI ϭ .97, IFI ϭ .97, GFI ϭ .95). Moreover, calculated our performance variable by averaging since the standardized “loadings” of all the mea- an organization’s 1998 and 1999 ROE and ROA. As surement items on their respective constructs were have prior researchers (e.g., Skaggs & Youndt, significant (p Ͻ .05) and none of the confidence 2004), we averaged performance over the two time intervals of the phi values contained a value of one, periods to help guard against random fluctuations we concluded that the constructs exhibited conver- and anomalies in the data, and combined ROE and gent and discriminant validity (Montoya-Weiss, ROA into one measure because they were highly Massey, & Song, 2001). We assessed construct reli- correlated. Both ROE and ROA were obtained ability by calculating Cronbach’s alpha coefficients through Disclosure. for each of the intellectual capital and innovative Industry environment controls. The nature of capability constructs. All of the scales were above the industries organizations compete in is known the suggested value of .70. Thus, we concluded the to influence their innovative capabilities. Follow- measures utilized in the study were valid and in- ing suggestions in Dess, Ireland, and Hitt (1990), we ternally consistent. controlled for industry effects by including industry munificence, dynamism, and complexity in our RESULTS analysis. Following Boyd (1990), we measured industry munificence, or resource abundance, as the To test our hypotheses, we used moderated re- regression slope coefficient divided by mean sales gression analysis. Following Venkatraman (1989), value found when regressing time against industry we centered (x៮ ϭ 0) the intellectual capital vari- sales for the past five years. Dynamism, or volatil- ables when performing our moderated regression ity, was assessed with the same regression model analysis to minimize the effects of any multicol- and was measured as the standard error of the linearity among the variables comprising our inter- regression slope coefficient divided by the mean action terms. Table 2 summarizes our results. sales value. And lastly, complexity, or heterogene- ity in the environment, was assessed with the MINL Control Variables formula of sales concentration (Schmalensee, 1977). As anticipated, several of our control variables exhibited significantly different effects across the innovative capability variables. Industry dyna- 1 The respondents were vice presidents/directors of marketing and R&D and were the same individuals who mism was positively related to radical innovative ␤ ϭ Ͻ provided information on innovative capabilities. This capability ( .42, p .001), implying that indus- was the only control variable for which information came tries characterized by volatile sales tend to com- from our survey; information for all the other control prise organizations with high degrees of radical variables came from secondary sources. innovative capability. Incremental innovative ca- 2005 Subramaniam and Youndt 457

TABLE 1 Correlationsa

Variables 1 2 3456789101112

1. Product/service 2. Size .03 3. R&D spending Ϫ.13 Ϫ.27 4. Prior performance Ϫ.13 Ϫ.13 .01 5. Complexity Ϫ.14 .04 Ϫ.03 .17 6. Dynamism Ϫ.00 .13 .13 Ϫ.27 Ϫ.15 7. Munificence Ϫ.19 .08 .16 .06 .16 .04 8. Human capital .22 Ϫ.15 .06 .17 .15 .02 .16 (.72) 9. Social capital .16 .07 Ϫ.12 .08 .42 .04 .25 .44 (.71) 10. Organizational capital Ϫ.14 Ϫ.26 .27 .19 Ϫ.02 Ϫ.06 .20 .14 .03 (.85) 11. Radical innovative capital Ϫ.34 .06 .22 Ϫ.01 Ϫ.01 .38 .08 Ϫ.09 .15 .29 (.71) 12. Incremental innovative capital .09 .05 Ϫ.02 Ϫ.05 Ϫ.21 Ϫ.04 .12 .24 .43 .23 .31 (.85)

a n ϭ 93. Correlations greater than .20 are significant at p Ͻ .05. Alpha coefficients are on the diagonal in parentheses. pability, on the other hand, exhibited a significant, esized results are worth mentioning. Social capital negative relationship with industry complexity was significantly and positively related to both in- (␤ ϭ -.69, p Ͻ .001), suggesting that organizations cremental (␤ ϭ .84, p Ͻ .001) and radical (␤ ϭ .54, operating in industries with a high sales concentra- p Ͻ .001) innovative capabilities. These findings tion among a few firms (low industry complexity) reveal a different facet of social capital; it is not tend to possess incremental innovative capabili- simply a moderator, as we had hypothesized, but ties. Supporting Dewar and Dutton’s findings also appears to have its own direct influence on (1986), we also found R&D spending (␤ ϭ .24, p Ͻ both the incremental and radical innovative capa- .05) to be significantly related to radical innovative bilities of organizations. capability.

DISCUSSION Independent Variables Overall, our findings provide strong support for With regard to our hypotheses based on the ra- the premise that different aspects of an organiza- tionale that intellectual capital reinforces prevail- tion’s intellectual capital and their interrelation- ing knowledge for incremental innovative capabil- ships selectively influence its capabilities for incre- ities, we found organizational capital to be mental and radical innovations. We found significantly related to incremental innovative ca- organizational capital to positively influence incre- pability (␤ ϭ .25, p Ͻ .05), thereby providing sup- mental innovative capability. Thus, institutional- port for Hypothesis 1. However, the social capital ized knowledge accumulated in and utilized by organizational capital (Hypothesis 2) interaction through an organization’s patents, databases, struc- was not significantly related to incremental inno- tures, systems, and processes seems to help it rein- vative capability. force its prevailing knowledge and, consequently, With regard to our hypotheses based on the ra- augments its incremental innovative capabilities. tionale that intellectual capital transforms prevail- We did not, however, find social capital to further ing knowledge for radical innovative capabilities, enhance organizational capital’s influence on in- we found human capital exhibited a significant, cremental innovative capabilities. So it appears negative relationship with radical innovative capa- that broad ties and interrelationships among indi- bility (␤ ϭ -.27, p Ͻ .05). Interestingly, this result is viduals and groups within and across organizations diametrically opposite to what we predicted in Hy- may not significantly add to the effectiveness of the pothesis 3. As expected, however, the human cap- flows of information and interactions that already ital by social capital interaction exhibited a signif- occur within the confines of an organization’s icant, positive relationship with radical innovative structured and codified procedures and rules. capability (␤ ϭ .30, p Ͻ .01), thus supporting Hy- Therefore, we can surmise that these institutional- pothesis 4. Figure 1 shows a plot of this interaction ized procedures for accumulating and utilizing effect. knowledge seem to have a focused strength of their In addition to these results, a few nonhypoth- own and a well-charted trajectory for reinforcing 458 Academy of Management Journal June

TABLE 2 Results of Regression Analysis for Intellectual Capital and Innovative Capabilitya

Reinforcing/Incremental Transforming/Radical

Variables Step 1 Step 2 Step 3 Step 1 Step 2 Step 3

Control Product/service–based .13 Ϫ.15 Ϫ.15 Ϫ.12 .22 Ϫ.18 Size .04 .12 .14 .01 .03 .01 R&D spending Ϫ.10 .13 .12 .14 .24* .24* Prior performanceb Ϫ.09 Ϫ.11 Ϫ.11 .06 .07 .15 Industry complexity Ϫ.18 .68*** Ϫ.69*** .04 Ϫ.17 Ϫ.23 Industry dynamism Ϫ.14 Ϫ.14 Ϫ.13 .35*** .37*** .42*** Industry munificence .05 Ϫ.08 Ϫ.09 .07 Ϫ.09 Ϫ.15 Intellectual capital Human capital .09 .10 Ϫ.25* Ϫ.27* Social capital .84*** .84*** .50*** .54*** Organizational capital .24* .25* .19 .19 Intellectual capital interactions Organizational capital ϫ .06 social capital Human capital ϫ social .30** capital ⌬R2 .37 .00 .15 .06 ⌬ P 16.05*** .36 5.31** 7.28** R2 .11 .48 .49 .20 .35 .42 F 1.26 6.27*** 5.68*** 2.47* 3.64** 4.28**

a Standardized regression coefficients are shown. b Measured as ROE plus ROA. * p Ͻ .05 ** p Ͻ .01 *** p Ͻ .001 knowledge that is not influenced appreciably by processes and values have become so powerful that social capital. This finding resonates with the ob- it almost doesn’t matter which people get assigned servations of Christensen and Overdorf, who noted to which project teams” (2000: 71). that at “firms such as McKinsey & Company, the Contrary to our expectations, human capital had

FIGURE 1 Hypothesized Human and Social Capital Interaction Plot 2005 Subramaniam and Youndt 459 a negative influence on radical innovative capabil- alliances (Koka & Prescott, 2002), attraction of ven- ity. This is an intriguing result suggesting that in- ture capital (Florin, Lubatkin, & Schulze, 2003), dividual expertise on its own is not conducive to and career success (Gabbay & Zuckerman, 1998), to radical innovation. In fact, having fiercely indepen- name a few. dent experts reluctant to share their ideas with their colleagues may be counterproductive for or- Implications ganizations. Interestingly, however, we found that the interaction of human and social capital posi- Taken together, these findings have two impor- tively influenced radical innovative capability, in- tant implications that not only enhance and refine dicating that the importance of human capital is conceptualizations of the knowledge-innovation strongly tied to social capital. That is, unless indi- link, but also offer useful and specific guidelines vidual knowledge is networked, shared, and chan- for management practice. First, it appears that the neled through relationships, it provides little ben- value of human capital in organizations is inextri- efit to organizations in terms of innovative cably tied to social capital. To effectively leverage capabilities. It is instructive to note parallel conclu- investments in human capital, it may be imperative sions from research on executive pay. Finding for organizations to invest in the development of weak main effects of human capital on executive social capital to provide the necessary conduits for remuneration, this research suggests that individu- their core knowledge workers to network and share als who cannot network and leverage their posi- their expertise. Organizations that neglect the so- tions in their organizations (i.e., use their social cial side of individual skills and inputs and do not capital) are unlikely to be rewarded (Carpenter & create synergies between their human and social Wade, 2002). Similarly, Groysberg, Nanda, and No- capital are unlikely to realize the potential of their hria (2004) found that the performance of “star” employees to enhance organizational innovative analysts invariably plummeted when they moved capabilities. Thus, an organization’s efforts at hir- across companies and, presumably, lost their social ing, training, work design, and other human re- networks. Thus, it seems that the social component source management activities may need to focus of individuals is likely an intrinsic aspect of their not only on shoring up their employees’ functional human capital (Gratton & Ghoshal, 2003). Hence, in or specific technological skills/expertise, but also today’s more network-based organizations and on developing their abilities to network, collabo- economy, it may be appropriate to move beyond rate, and share information and knowledge. traditional definitions of human capital that re- Two, social capital appears to be the bedrock of volve primarily around educational/functional innovative capabilities. Given that innovation is skills to include competencies surrounding inter- fundamentally a collaborative effort, social capital personal interactions and networking. assumes a central role in generating both incremen- Although we did not hypothesize it, we also tal and radical innovations. Thus, communication, found social capital to positively influence both fluid diffusion of information, and the sharing and incremental and radical innovative capabilities. assimilating of knowledge are vital elements of in- These findings surrounding social capital under- novative capabilities, irrespective of their type. In- score the significance of interrelationships, part- vestments in social capital, therefore, may be fun- nerships, and collaborative networks to an organi- damental for developing a range of innovative zation’s innovation versatility. They also validate capabilities and gaining the flexibility to selec- some recent anecdotal evidence provided by tively use these capabilities to meet market or com- O’Reilly and Tushman (2004) on “ambidexterous” petitive exigencies. Accordingly, social capital may organizations, or organizations that can simulta- be the key not only for creating ambidexterous or- neously pursue incremental and discontinuous in- ganizations (Tushman & O’Reilly, 1997), but also novations. Taking an in-depth look at two compa- for developing “dynamic capabilities” that enable nies’ successful efforts to be ambidexterous, organizations to shift their competitive focus and O’Reilly and Tushman found that conscious efforts achieve new forms of competitive advantage to build strong social networks were an important (Blyler & Coff, 2003; Teece, Pisano, & Shuen, 1997). underlying factor. More broadly, the versatility that we found in social capital’s influence on innova- Limitations tive capabilities parallels findings in other recent studies that social capital is a very important or- We recognize several limitations of this study. ganizational resource. For example, social capital Our net sample size was relatively small, given the has been found to influence a wide range of organ- number of variables in our research models. Al- izational outcomes, such as success in strategic though a larger sample would have given more 460 Academy of Management Journal June power to our results, the difficulty of collecting Future Research Directions executive-level primary data—particularly through By taking a first step toward understanding the a two-part longitudinal study—imposed limits on broad patterns in the interrelationships between size. Another limitation was that our measures of various aspects of intellectual capital and different the different aspects of intellectual capital and the types of innovative capabilities, this study provides types of innovative capabilities were perceptual, a road map for more focused studies’ examination based on key informants. We relied on perceptual of these interrelationships. One such approach measures because it was difficult to obtain relevant would be to focus more closely on the link between objective measures capturing the variations in in- social capital and innovative capability in an effort tellectual capital and innovative capabilities across to understand why social capital influences both multiple industries with the kind of precision we types of innovative capabilities. For example, Tsai required. Moreover, we measured the various aspects of intellectual capital from the vantage point and Ghoshal’s (1998) classification of structural, of key informants because our objective was to relational, and cognitive dimensions of social cap- assess the degree of each of these aspects of intel- ital could be used to examine whether the “ambi- lectual capital for an organization as a whole. dexterous” impact of social capital is due to the It is possible, however, to measure intellectual multipronged influence of these subdimensions. capital at different levels in an organization using Similarly, Adler and Kwon’s (2002) insights on var- different measurement approaches. For example, ious contingencies governing the value of social in a more focused study researchers could collect capital could be used to further refine understand- individual-level data and aggregate them to as- ing of the impact of social capital on innovative sess an organization’s human capital or use net- capabilities. One such contingency that Adler and work analysis of relationship matrixes to assess Kwon (2002) suggested involves the nature of a social capital. However, it was impractical to get task, which may determine whether weak or strong such information from hundreds of firms in many social ties are more valuable. A question this line of different industries and achieve the generaliz- reasoning opens up is whether weak or strong or ability across contexts that our present inquiry social ties add differential value depending on provides. whether the task at hand is generating incremental We also recognize that the links between intel- or radical innovations. lectual capital and innovative capabilities are Another area into which this study can be ex- complex and contingent upon several multifac- tended is examination of how certain precipitating eted organizational actions and attributes. For events exogenous to organizations can galvanize example, organizations may undertake specific their intellectual capital to generate different types strategic directives while hiring individuals who of innovations. How would events, such as per- are intended to either reinforce or transform ex- sonal crises (e.g., the unexpected departure of a isting organizational practices. Such directives strong CEO), firm-level crises (e.g., disruptive inno- can influence the way human capital influences vations), or simple serendipitous events (such as a incremental and radical innovative capabilities. breakthrough discovery), change the dynamics be- The scope of our research, however, did not take tween different aspects of intellectual capital and into account the possible influences of such di- innovative capabilities? Would human capital still rectives. Similarly, the level at which individuals provide the platform for diverse and vibrant ideas? (human capital) are positioned in an organization’s Would organizational capital continue to reinforce hierarchy (for instance, top versus middle managers) prevailing capabilities? Would social capital be- may also produce different influences on innovative come an even more versatile, powerful driver of capabilities. Such contingencies point to additional innovation? These are some possible points of de- areas that need to be probed with respect to the parture for further synthesis of the knowledge and knowledge-innovation link. So, although we have innovation literature streams. tried to parsimoniously examine the core aspects of To conclude, our study provides an empirically this link by focusing on a select set of essential vari- grounded framework simultaneously linking variables, we acknowledge that we have addressed only ous aspects of intellectual capital and their interre- one part of a very complex question. Nonetheless, by lationships to different types of innovative capabil- synthesizing two distinct literature streams (intellec- ities. This framework shows how organizations tual capital and innovation), we have initialized ef- need to distinctively utilize their varied knowledge forts to understand the multifaceted knowledge-inno- resources to achieve different types of capabilities vation link. for innovation. It also provides a structure for fu- 2005 Subramaniam and Youndt 461 ture research probing of more specific questions lenge of disruptive change. Harvard Business Re- regarding the knowledge-innovation link. view, 78(2): 66–76. Cohen, W. M. 1995. Empirical studies of innovative activity. In P. Stoneham (Ed.), Handbook of the eco- REFERENCES nomics of innovation and technological change: 182–264. Oxford, England: Blackwell. Abernathy, W. J., & Clark, K. 1985. Innovation: Mapping the winds of creative destruction. Research Policy, Cohen, W. M., & Levinthal, D. A. 1990. Absorptive ca- 14: 3–22. pacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35: 128– Adler, P. S., & Kwon, S. W. 2002. Social capital: Pros- 152. pects for a new concept. Academy of Management Review, 17: 17–40. Cooper, R. G. 2001. Winning at new products: Acceler- Ahuja, G. 2000. Collaborative networks, structural holes, ating the process from idea to launch. Cambridge, and innovation: A longitudinal study. Administra- MA: Perseus Books. tive Science Quarterly, 45: 425–455. Daft, R. L., & Weick, K. E. 1984. Toward a model of Ahuja, G., & Lampert, C. M. 2001. Entrepreneurship in organizations as interpretation systems. Academy of the large corporation: A longitudinal study of how Management Review, 9: 284–295. established firms create breakthrough inventions. Daneels, E. 2002. The dynamics of product innovation Strategic Management Journal, 22: 521–543. and firm competencies. Strategic Management Allen. T. 1977. Managing the flow of technology: Tech- Journal, 23: 1095–2021. nology transfer and the dissemination of techno- Davenport, T. H., & Prusak, L. 1998. Working knowl- logical information within the R&D organization. edge: How organizations manage what they know. Cambridge, MA: MIT Press. Boston: Harvard Business School Press. Bentler, P. M., & Bonnett, D. G. 1980. Significance tests Dess, G. G., Ireland, R. D., & Hitt, M. A. 1990. Industry and goodness of fit tests in the analysis of covariance effects and strategic management research. Journal structures. Psychological Bulletin, 88: 588–606. of Management, 16: 7–27. Blyler, M., & Coff, R. W. 2003. Dynamic capabilities, Dewar, R. D., & Dutton, J. E. 1986. The adoption of radical social capital and rent appropriation: Ties that split and incremental innovations: An empirical analysis. pies. Strategic Management Journal, 24: 677–687. Management Science, 32: 1422–1433. Bourdieu, P. 1985. The forms of capital. In J. G. Richard- Dougherty, D. 1992. Interpretive barriers to successful son (Ed.), Handbook of theory and research for the product innovation in large firms. Organization Sci- sociology of education: 241–258. New York: Green- ence, 3: 179–203. wood. Ettlie, J. E. 1983. Organizational policy and innovation Boyd, B. 1990. Corporate linkages and organizational among suppliers to the food processing sector. Acad- environments: A test of the resource dependence emy of Management Journal, 26: 27–44. model. Strategic Management Journal, 11: 419– 430. Florin, J., Lubatkin, M., & Schulze, W. 2003. A social capital model of high-growth ventures. Academy of Brown, J. S., & Duguid, P. 1991. Organizational learning and communities of practice: Toward a unified view Management Journal, 46: 374–384. of working, learning and innovation. Organization Gabbay, S. M., & Zuckerman, E. W. 1998. Social capital Science, 2: 40–57. and opportunity in corporate R&D: The contingent Burt, R. S. 1992. Structural holes: The social structure effect of contact density on mobility expectations. of competition. Cambridge, MA: Harvard University Social Science Research, 27: 189–217. Press. Garud, R., & Nayyar, P. 1994. Transformative capacity: Cardinal, L. B. 2001. Technological innovation in the Continual structuring by intertemporal technology pharmaceutical industry: The use of organizational transfer. Strategic Management Journal, 15: 365– control in managing research and development. Or- 385. ganization Science, 12: 19–36. Gatignon, H., Tushman, M. L., Smith, W., & Anderson, P. Carpenter, M. A., & Wade, J. B. 2002. Micro-level oppor- 2004. A structural approach to assessing innovation: tunity structures as determinants of non-CEO exec- Construct development of innovation locus, type utive pay. Academy of Management Journal, 45: and characteristics. Management Science, 48: 1085–1103. 1103–1123. Chandy, R. K., & Tellis, G. J. 2000. The incumbent’s Gratton, L., & Ghoshal, S. 2003. Managing personal hu- curse? Incumbency, size and radical product inno- man capital: New ethos for the “volunteer” em- vation. Journal of Marketing, 64(3): 1–17 ployee. European Management Journal, 21: 1–10. Christensen, C., & Overdorf, M. 2000. Meeting the chal- Groysberg, B., Nanda, A., & Nohria, N. 2004. The risky 462 Academy of Management Journal June

business of hiring stars. Harvard Business Review, Nahapiet, J., & Ghoshal, S. 1998. Social capital, intellec- 82(May): 92–100. tual capital, and the organizational advantage. Acad- Gupta, A. K., & Govindarajan, V. 2000. Knowledge man- emy of Management Review, 23: 242–266. agement’s social dimension: Lessons from Nucor Nelson, R., & Winter, S. 1982. An evolutionary theory of Steel. Sloan Management Review, 42(1) 71–79. economic change. Cambridge, MA: Belknap Press. Hansen, M. T., Nohria, N., & Tierney, T. 1999. What’s Nonaka, I. 1994. A dynamic theory of organizational your strategy for managing knowledge? Harvard knowledge creation. Organization Science, 5: 14– Business Review, 77(2): 106–116. 37. Hargadon, A., & Sutton, R. I. 1997. Technology brokering Nonaka, I., & Takeuchi, H. 1995. The knowledge-creat- and innovation in a product development firm. Ad- ing company: How Japanese companies create the ministrative Science Quarterly, 42: 716–749. dynamics of innovation. New York: Oxford Press. Hayek, F. A. 1945. The use of knowledge in society. O’Reilly, C., & Tushman, M. L. 2004. The ambidexterous American Economic Review, 35: 519–532. organization. Harvard Business Review, 82(April): Henderson, R., & Clark, K. B. 1990. Architectural inno- 1–9. vation: The reconfiguration of existing product tech- Putnam, R. D. 1995. Bowling alone: America’s declining nologies and the failure of established firms. Admin- social capital. Journal of Democracy, 6(1): 65–78. istrative Science Quarterly, 35: 9–30. Rosenkopf, L., & Nerkar, A. 2001. Beyond local search: Henderson, R., & Cockburn, I. 1994. Measuring core com- Boundary spanning, exploration, and impact in the petence? Evidence from the pharmaceutical indus- optical disc industry. Strategic Management Jour- try. Strategic Management Journal, 15: 63–84. nal, 22: 287–306. Hill, C. W. L., & Rothaermel, F. T. 2003. The performance Schilling, M. A. 1998. Technological lockout: An integra- of incumbent firms in the face of radical technolog- tive model of the economic and strategic factors driv- ical innovation. Academy of Management Review, ing technological success and failure. Academy of 28: 257–274. Management Review, 23: 267–284. Katila, R. 2002. New product search over time: Past ideas Schmalensee, R. 1977. Using the H-index of concentra- in their prime? Academy of Management Journal. tion with published data. Review of Economics & 45: 995–1010. Statistics, 59: 186–213. Katila, R., & Ahuja, G. 2002. Something old, something Scho¨n, D. A. 1963. Champions for radical new inven- new: A longitudinal study of search behavior and tions. Harvard Business Review, 41(2): 77–86. new product introduction. Academy of Manage- ment Journal, 45: 1183–1194. Schultz, T. W. 1961. Investment in human capital. Amer- ican Economic Review, 51: 1–17. Koka, B. R., & Prescott, J. E. 2002. Strategic alliances as social capital: A multidimensional view. Strategic Skaggs, B. C., & Youndt, M. A. 2004. Strategic position- Management Journal, 23: 795–817. ing, human capital, and performance in service organizations: A customer interaction approach. Stra- Kostova, T., & Roth, K. 2003. Social capital in multina- tegic Management Journal, 25: 85–99. tional corporations and a micro-macro model of its formation. Academy of Management Review, 28: Snell, S. A., & Dean, J. W. 1992. Integrated manufacturing 297–317. and human resources management: A human capital perspective. Academy of Management Journal, 35: Lyles, M. A., & Mitroff, I. I. 1980. Organization problem 467–504. formulation: An empirical study. Administrative Science Quarterly, 25: 102–119. Stewart, T. A. 1997. Intellectual capital. New York: Doubleday-Currency. Madhavan, R., & Grover, R. 1998. From embedded knowledge to embodied knowledge: New product Stuart, T. E., & Podolny, J. M. 1996. Local search and the development as knowledge management. Journal of evolution of technological capabilities. Strategic Marketing, 62(4): 1–12. Management Journal, 17(summer special issue): 21–38. March, J. 1991. Exploration and exploitation in organizational learning. Organization Science, 2: 71–87. Subramaniam, M., & Venkatraman, N. 2001. Determi- nants of transnational new product development ca- Martin, X., & Mitchell, W. 1998. The influence of local pability: Testing the influence of transferring and search and performance heuristics on new design deploying tacit overseas knowledge. Strategic Man- introduction in new product market. Research Pol- agement Journal, 22: 359–378. icy, 26: 753–771. Montoya-Weiss, M. M., Massey, A. P., & Song, M. 2001. Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic Getting it together: Temporal coordination and con- capabilities and strategic management. Strategic flict management in global virtual teams. Academy Management Journal, 18: 509–533. of Management Journal, 44: 1251–1262. Tsai, W., & Ghoshal, S. 1998. Social capital and value 2005 Subramaniam and Youndt 463

creation: The role of intrafirm networks. Academy Our employees partner with customers, suppliers, al- of Management Journal, 41: 464–478. liance partners, etc., to develop solutions. Tushman, M., & Anderson, P. 1986. Technological dis- Our employees apply knowledge from one area of the continuities and organizational environments. Ad- company to problems and opportunities that arise in ministrative Science Quarterly, 31: 439–65. another. Tushman, M., & Murmann, J. 1998. Dominant designs, technology cycles, and organizational outcomes. In Organizational Capital B. Staw & L. L. Cummings (Eds.), Research in orga- Our organization uses patents and licenses as a way to nizational behavior, vol. 20: 231–266. Greenwich, store knowledge. CT: JAI Press. Much of our organization’s knowledge is contained in Tushman, M., & O’Reilly, C. 1997. Winning through manuals, databases, etc. innovation. Boston: Harvard Business School Press. Our organization’s culture (stories, rituals) contains valuable ideas, ways of doing business, etc. Van de Ven, A. H. 1986. Central problems in the man- Our organization embeds much of its knowledge and agement of innovation. Management Science, 32: information in structures, systems, and processes. 590–607. Venkatraman, N. 1989. The concept of fit in strategy The following items had this stem and response scale: research: Toward verbal and statistical correspon- “How would you rate your organization’s capability to dence. Academy of Management Review, 11: 71– generate the following types of innovations in the prod- 87. ucts/services you have introduced in the last five years? (1 ϭ weaker than competition; 4 ϭ similar to competi- Walsh, J. P., & Ungson, G. R. 1991. Organizational mem- tion; 7 ϭ stronger than competition).” ory. Academy of Management Review, 16: 57–91.

Youndt, M. A., Subramaniam, M., & Snell, S. A. 2004. Incremental Innovative Capability Intellectual capital profiles: An examination of investments and returns. Journal of Management Innovations that reinforce your prevailing product/ Studies, 41: 335–362. service lines. Innovations that reinforce your existing expertise in prevailing products/services. APPENDIX Innovations that reinforce how you currently compete. Intellectual Capital and Innovative Capabilities Radical Innovative Capability Questionnaire Items Innovations that make your prevailing product/service The following items had this stem and response for- lines obsolete. mat: “To what extent do you agree with the following Innovations that fundamentally change your prevail- items describing your organization’s intellectual capital? ing products/services. (1 ϭ strongly disagree; 7 ϭ strongly agree).” Innovations that make your existing expertise in prevailing products/services obsolete.

Human Capital Our employees are highly skilled. Our employees are widely considered the best in our Mohan Subramaniam ([email protected]) is industry. an associate professor of strategic management at the Our employees are creative and bright. Carroll School of Management at Boston College. He Our employees are experts in their particular jobs and received a DBA in management policy from Boston Uni- functions. versity and an MBA from the Indian Institute of Manage- Our employees develop new ideas and knowledge. ment at Bangalore. His research focuses on the strategic management of knowledge and innovation.

Social Capital Mark A. Youndt is an associate professor of management and business at Skidmore College. He received his Ph.D. Our employees are skilled at collaborating with each in management and organization from Pennsylvania other to diagnose and solve problems. State University. His research focuses on the strategic Our employees share information and learn from one management of human, social, and organizational another. capital. Our employees interact and exchange ideas with people from different areas of the company.