Timing cooperative relationships with sequential capability development process to reduce capability development trade-offs

A key challenge for a firm is to continuously develop new capabilities in order to address changes in the external environment. Prior research on firm capabilities posits that knowledge sharing within supply chains can contribute to the firm׳s new capability development efforts. Although existing research on capabilities clearly links firm capabilities to firm advantage, it does not prescribe a process by which a firm should develop the capabilities required to compete successfully in the marketplace. Such prescription is necessary because (1) a firm faces trade-offs when developing capabilities in the short-run and (2) interdependencies among capabilities require a firm to prioritize and develop capabilities in a sequential manner. The sequence in which a firm develops new capabilities matters when the development of one capability can influence the development of a different capability and the effect is unidirectional and asymmetrical. Prior research primarily relies on Ordinary Least Squares (OLS) and Structural Equation Model (SEM) to determine whether differences in a firm׳s capabilities explain differences in performances. However, these statistical tools have limitations when determining the sequence in which a firm should develop various interdependent capabilities. Therefore, the purpose of this study is to delineate and prescribe a capability development process using Analytic Network Process (ANP) to reduce capability development trade-offs. ANP can be used to determine which capabilities are more important to achieving a desirable firm performance and to prescribe the sequence by which a firm can develop capabilities. We show that a firm can avoid capability development trade-offs and develop interdependent capabilities by efficiently using knowledge acquired from suppliers and customers when it develops a quality capability followed by low cost, delivery, and flexibility capabilities.