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Toward a dynamic capabilities scale: measuring organizational sensing,

seizing, and transforming capacities

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DOI: 10.1093/icc/dty054

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Toward a dynamic capabilities scale: Measuring organizational

sensing, seizing, and transforming capacities

Barbara Kump, Alexander Engelmann, Alexander Keßler, Christina Schweiger

Abstract. To date, no standard scale exists for measuring dynamic capabilities. This

limits the comparability of empirical findings and impairs data-based theory development.

This article presents the development of a 14-items scale based on Teece’s (2007) well-

established dynamic capability framework, assessing sensing, seizing, and transforming

capacities. It describes the rigorous empirical scale development procedure comprising the

steps of (i) item generation, (ii) scale purification (n = 269), and (iii) scale confirmation (n =

307). The scale shows high reliability and validity and is a solid predictor of business and

innovation performance.

Keywords: dynamic capabilities; scale development; survey; business performance;

innovation performance

Please cite as: Kump, B., Engelmann, A., Keßler, A., & Schweiger, C. (2019). Toward a

dynamic capabilities scale: Measuring organizational sensing, seizing, and transforming

capacities. Industrial and Corporate Change, 28 (5), 1149-1172.

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INTRODUCTION

Since its introduction approximately two decades ago (Eisenhardt and Martin, 2000; Helfat,

1997; Teece, Pisano, and Shuen, 1997), the concept of dynamic capabilities (DC) has received

great attention from management scholars (for reviews see, e.g., Ambrosini and Bowman,

2009; Barreto, 2010; Di Stefano, Peteraf, and Verona, 2010; Schilke, Hu, and Helfat, 2018,

Vogel and Güttel, 2013; Wilden, Devinney, and Dowling, 2016). Defined as organizational

capabilities that allow firms to ‘build and renew resources and assets […], reconfiguring them

as needed to innovate and respond to (or bring about) changes in the market and in the

business environment’ (Teece, 2014: 332), DC are crucial for firms to achieve strategic

change and renewal (Agarwal and Helfat, 2009; Helfat et al., 2007).

A rigorous literature review by Schilke et al. (2018) revealed two important

observations: First, in contrast with earlier days when most DC studies were conceptual, the

majority of DC research is now empirical; second, while recently researchers (e.g., Girod and

Whittington, 2017; Stadler, Helfat, and Verona, 2013) have started to explore the potential of

employing proxies for measuring DC, still 33 percent of all publications on DC they reviewed

report findings from survey studies. However, nearly each of these studies uses its own survey

instrument, and no standard scale exists for measuring DC to expose the concept to a

systematic empirical investigation. Moreover, in hardly any of these quantitative studies

measuring DC as dependent or independent variables (e.g., Lin, Su, and Higgins, 2016;

Lopez-Cabrales, Bornay-Barrachina, and Diaz-Fernandez, 2017; Marcus and Anderson, 2006;

Naldi, Wilkström, and Von Rimscha, 2014), the employed DC scales have been developed in

line with acknowledged good practices of scale construction in organizational contexts as

suggested, for instance by Churchill (1979) or Hinkin (1995, 1998; one exception is Wilden,

Gudergan, Nielsen, and Lings’, 2013 scale). Both the absence of a standard scale and the lack

of ultimate rigor in scale development limit the comparability of findings in the growing
 3

number of quantitative survey studies and the applicability of meta-analyses for further

improving conceptual clarity; findings from different studies remain fragmented and

disconnected. Only by employing standardized, validated instruments that incorporate the

assumptions underlying the concept of DC, empirical research can reveal both theoretical

insights and well-founded implications for managers. Our research aims to contribute to the

development of a standardized DC scale by applying a rigorous scale development procedure.

The development of a scale should start from a well-established construct (Clark and

Watson, 1995) and follow a systematic multi-staged procedure, where the operationalizations

are gradually reduced to a set of items that most consistently reflect that construct. According

to Schilke et al.’s (2018) study, the most widely acknowledged, and most frequently referred

to DC framework is Teece’s (2007, further developed from Teece, Pisano, and Shuen’s, 1997)

model, that conceptualizes DC as sensing, seizing, and transforming capacities. Hence, we

took Teece’s (2007) conceptualization as a starting point for our scale development.

Our main contribution is a carefully designed and empirically validated version of a DC

scale measuring Teece’s (2007) sensing, seizing, and transforming capacities. The resulting

scale comprises 14 items. The subscales show high internal consistency, and the overall scale

reveals high construct validity. The capacities are solid predictors of different facets of

business performance and innovation performance, indicating substantial criterion validity of

the scale. Although the actual scale may have to be extended, revised, or even partly discarded

in future iterations, it may serve as a starting point for further consolidating empirical

research.

This article is organized as follows. We first provide the theoretical rationale of our

approach to measuring DC based on Teece’s (2007) framework. Then, we review existing

scales for measuring Teece’s DC concept. The core body describes the process of scale

development: We explain how we formulated the items of the scale based on precise
 4

operationalizations (item generation), how we assessed the dimensionality and internal

consistency of the preliminary scale with an exploratory factor analysis based on a sample of

269 companies, and how we purified it by removing items of low psychometric quality (scale

purification). We further describe how we cross-validated the factor structure of the items in a

second-order confirmatory factor analysis (CFA) based on a new sample of 307 companies

and tested the criterion validity by predicting various performance indicators (scale

confirmation). We conclude with a discussion of our scale compared to other approaches for

measuring DC (scales and secondary data), and some theoretical implications of our research.

THE CONCEPT OF DYNAMIC CAPABILITIES

Different perspectives on DC

Since Teece et al.’s (1997: 516) original introduction of the term dynamic capabilities as

capabilities to ‘integrate, build, and reconfigure internal and external competences to address

rapidly changing environments’, the concept of DC has become one of the most important

theoretical lenses in contemporary management scholarship (for recent and comprehensive

reviews see Wilden et al., 2016, and Schilke et al., 2018). There is consensus in the literature

that the role of DC is to modify a firm’s existing resource base and to transform it

intentionally and in alignment with strategic assumptions in such a way that a new bundle or

configuration of organizational resources is created (Ambrosini and Bowman, 2009; Helfat et

al., 2007; Zahra, Sapienza, and Davidsson, 2006). This role is also reflected in the distinction

between dynamic and ‘ordinary’ capabilities, as outlined by Teece (2014; see also Winter,

2003, or Zahra et al., 2006): Ordinary capabilities are responsible for generating value for a

firm (e.g., supply chain management of a car manufacturer; delivery of high-quality

management education in a business school). In contrast, DC extend, modify, and create

ordinary capabilities. There is agreement in the literature that through this modification of
 5

ordinary capabilities, DC may contribute to competitive advantage, but they are not sufficient

for sustained firm performance (Helfat et al., 2007; Schilke et al., 2018; Wilden et al., 2016).

Besides these commonalities, some important differences exist between different

streams in the field, and in the past, the DC framework has been the subject of numerous

theoretical debates (for overviews, see, e.g., Arend and Bromiley, 2009; Ambrosini and

Bowman, 2009; Barreto, 2010 Easterby-Smith, Lyles, and Peteraf, 2009; Di Stefano et al.,

2014; Wilden et al., 2016). Most importantly, Peteraf et al., (2013) demonstrated a theoretical

divide between a stream of research that builds on Teece et al.’s (1997) conceptualization

(further developed by Teece, 2007; Helfat et al., 2007), and a stream that relies on Eisenhardt

and Martin’s (2000) view. However, based on an in-depth theoretical analysis of the two

approaches, Peteraf et al. (2013) showed that they are just differences in perspectives (as

regards boundary conditions, attainment of sustainable and competitive advantage) that can be

combined under certain circumstances. A few years later, Wilden et al. (2016) observed that

these two camps have moved more closely together since 2012 – which may be partly due to

Peteraf et al.’s (2013) integrative perspective. Similarly, Schilke et al. (2018) demonstrated

that there is now considerable conceptual convergence in the field: On the basis of a content

analysis of 298 articles, they came to the conclusion that the three most influential definitions

by Teece et al. (1997), Eisenhardt and Martin (2000), and Helfat et al. (2007) are

complementary and build on one another, and that other frequently used definitions are highly

consistent with those three.

Yet, for measuring DC, researchers have to specify which perspective they take with

their measure, Teece’s (and Helfat et al.’s), or Eisenhardt and Martin’s view. Teece et al.’s

(1997) approach (and its further developments) is rather broad and general (e.g., ‘the firm’s

ability to integrate, build, and reconfigure […] competences’; Teece et al., 1997: 516), and

seeks to specify generic micro-foundations, sensing, seizing, and transforming capacity

 6

(Teece, 2007). In contrast, Eisenhardt and Martin (2000, and those building on their work) do

not provide a generic set of capacities, but present a list of examples for DC, including

product development routines, strategic decision making routines, routines for replication and

brokering, resource allocation routines, and so forth.

For the present scale development, we chose Teece’s (2007) conceptualization for a

theoretical and a practical reason: The theoretical reason is that we aimed at measuring

general DC of a firm; Teece’s (2007) model provides general types of processes in which DC

are engaged (sensing, seizing, and transforming) and not specific functional domains of DC

(e.g., alliancing, product development), as Eisenhardt and Martin’s (2000), perspective would

imply. Thereby, in line with Schilke et al. (2018), we regard Teece’s (2007) work not as a

supersession but as an elaboration of Teece et al.’s (1997) typology. The practical reason for

relying on Teece’s perspective is that it has been employed in the majority of empirical DC

studies so far (Schilke et al., 2018). In the following sub-sections, we will outline the

theoretical and methodical implications of this decision to rely on Teece’s (2007) view for

scale development.

Implications of Teece’s DC conceptualization for scale development

Teece et al.’s (1997) and Eisenhardt and Martin’s (2000) approaches (and their respective

further developments) are in agreement in many regards. Most importantly, both originate

from the resource-based view, and both take a multi-level perspective in that they combine

managerial and organizational processes. One seemingly difference is whether DC are

considered capacities or routines (Di Stefano et al., 2010; 2014). Perspectives that are based

on Teece et al.’s (1997) definition regard DC as capacities; those based on Eisenhardt and

Martin (2000) view DC as routines. However, Di Stefano et al. (2014) showed that the two

views can be combined: Capacities are latent and can be observed only once they are put into

action, whereas routines and their constituent elements are more observable. That is, DC are
 7

seen as latent capacities, which are manifested in (observable) routines and their outcomes.

Only through these routines, DC enable strategic renewal in a continuous and reliable way.

Hence, both perspectives agree on the crucial role of routines (Peteraf et al., 2013).

Moreover, while Teece et al.’s (1997) and Eisenhard and Martin’s (2000) views seem to

diverge in (a) whether they regard DC as useful for firms in highly dynamic environments, (b)

whether DC are a source of sustainable advantage, and (c) whether DC are a source of

competitive advantage, Peteraf et al. (2013) showed that the two perspectives can be

combined in the sense of a contingency approach, by defining boundary conditions under

which both their assumptions hold true: In moderately dynamic environments, DC as ‘best

practices’ (as conceptualized by Teece et al., 1997) may be a source of sustainable

competitive advantage, if they are idiosyncratic in their details. For the context of highly

dynamic environments, the assumptions of the two perspectives can still be in alignment, for

example, if DC take the shape of higher-order capabilities (e.g., capabilities in rapid and

continuous product innovation). These higher-order capabilities may enable firms to deploy

and modify lower-order DC in the form of simple rules. As a second circumstance under

which the approaches are in alignment also in high-velocity markets, Peteraf et al. (2013)

mention the presence of DC that are not specific but generic in the sense that they remain

useful to the firm even as market conditions change.

Consequently, in order to build a scale based on Teece’s (2007) view that still does not

contradict Eisenhardt and Martin’s (2000) perspective, a few methodical implications must be

considered: First, in line with Teece’s rather general conceptualization of DC, the scale should

capture rather broad and general dynamic capabilities for integrating, building, and

reconfiguring ordinary capabilities, and not measure examples of DC (e.g., product

development routines, strategic decision making routines). Second, to be effective in high-

velocity markets (the area of application targeted by Teece et al., 1997; Teece, 2007, 2014),
 8

DC should be seen as generic in the sense that they remain useful even if the market changes

dramatically. Third, in order to potentially enable competitive advantage (in line with the

VRIN criteria) these capabilities might be formulated as ‘best practices’, but only if the

definitions of these best practices would leave room for idiosyncrasy (as suggested by

Eisenhardt and Martin, 2000): That is, the definitions should acknowledge that one and the

same latent aspect of DC (e.g., the capacity to continuously identify trends in the firm’s

environment) may manifest in different routines across different firms. Hence, firms that

possess high levels of certain aspects of DC may have established reliable routines that lead to

similar DC outcomes (e.g., awareness of market trends), but they may differ with regard to the

concrete methods and structures of how they achieve these DC outcomes.

Dimensions of DC: Sensing, seizing, and transforming

Teece (2007, see also Teece, 2014) provided further refinements of DC into generic sensing,

seizing, and transforming capacities, which need to be closely aligned with a firm’s strategy.

Teece’s conceptualizations of these capacities are rather broad: Sensing includes as many

aspects as ‘identification, development, codevelopment and assessment of technological

opportunities in relationship to customer needs’ (Teece, 2014: 332), seizing involves the

‘mobilization of resources to address needs and opportunities, and to capture value from

doing so’ (ibid, 2014: 332), and transforming means nothing less than ‘continued renewal’

(ibid, 2014: 332). In order to operationalize them, Teece’s (2007, 2014) broad

conceptualizations have to be further specified.

Sensing refers to an organization’s capacity to continuously scan the organizational

environment (Teece, 2007, 2014; see also Makkonen et al., 2014; Pavlou and Sawy, 2011).

According to Teece, sensing refers to accumulating and filtering information from the

environment ‘to create a conjecture or a hypothesis about the likely evolution of technologies,

customer needs, and marketplace responses’ and ‘involves scanning and monitoring internal
 9

and external technological developments and assessing customer needs, expressed and latent’

(Teece, 2007: 1323), in addition to shaping market opportunities and monitoring threats.

Some researchers (e.g., Babelytė-Labanauskė and Nedzinskas, 2017) have outlined that

sensing does not only have an external focus but also has an internal aspect: It may, for

example, involve the identification of new developments and opportunities within the firm.

This theoretical difference between external and internal sensing is reflected in further

developments of cognitive micro-foundations of sensing: Some scholars in the strategic

management field (e.g., Helfat and Peteraf, 2015) have focused on perception and attention

(i.e., a rather external perspective), while others (e.g., Hodgkinson and Healey, 2011) have

mainly looked at the need for reflection/reflexion (i.e., a rather internal perspective).

Nevertheless, Teece’s (2007, 2014) original conceptualization is more oriented towards the

organization’s external environment. Hence, in the present article, we stick closely with

Teece’s original model and understand sensing mainly as external sensing. This sensing

component involves both, recognizing opportunities, and anticipating competitive threats

(Helfat and Peteraf, 2015). This may take place formally (e.g., through systematic market

research) or informally (e.g., through self-motivated reading of industry newspapers by staff

members). Refining Teece’s broad definition, we posit that an organization with high sensing

capacity is able to continuously, and reliably acquire strategically relevant information from

the environment, including market trends, best practices, and competitors’ activities.

Seizing refers to developing and selecting business opportunities that fit with the

organization’s environment and its strengths and weaknesses (Teece, 2007). Seizing thus

means that market opportunities are successfully exploited and that threats are eluded. Seizing

bridges external and internal information and knowledge, and it is closely linked with

strategic decision making, particularly regarding investment decisions. Seizing capacity starts

from a strategy that enables the recognition of valuable knowledge. This evaluation is based
 10

on prior knowledge, and it results in a selection from a variety of strategic options. Seizing

capacity within an organization is high if the organization is able to decide whether some

information is of potential value, to transform valuable information into concrete business

opportunities that fit its strengths and weaknesses and to make decisions accordingly.

Transforming, according to Teece (2007: 1319), includes ‘enhancing, combining,

protecting, and, when necessary, reconfiguring the business enterprise’s intangible and

tangible assets’, such that path dependencies and inertia are avoided. That is, transforming

refers to putting decisions for new business models, product or process innovations into

practice by implementing the required structures and routines, providing the infrastructure,

ensuring that the workforce has the required skills, and so forth. Transforming is characterized

by the actual realization of strategic renewal within the organization through the

reconfiguration of resources, structures, and processes. Teece (2007: 1335) describes

transforming (reconfiguring) as the ‘ability to recombine and to reconfigure assets and

organizational structures as the enterprise grows, and as markets and technologies change’.

Thereby, transforming is similar to Li and Liu’s (2014) implementation capacity, which is

defined as ‘the ability to execute and coordinate strategic decision and corporate change,

which involves a variety of managerial and organizational processes, depending on the nature

of the objective’ (ibid: 2794). Implementing thus refers to communicating, interpreting,

adopting, and enacting strategic plans (Noble, 1999). Only through implementation does

renewal come into being; otherwise, new information and ideas within an organization remain

theoretical inputs and potential changes. An organization with a high transforming capacity

consistently implements decided renewal activities by assigning responsibilities, allocating

resources, and ensuring that the workforce possesses the newly required knowledge.
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EXISTING SCALES FOR MEASURING DC BASED ON TEECE

As outlined above, even if no standard scale exists, several researchers have developed and

employed various DC scales based on Teece (2007). To gain an overview of existing scales,

we systematically searched peer-reviewed journals from the database ProQuest for the time

between 1997 (the year of publication of Teece et al.’s original conceptualization) and January

2018. The central search term was dynamic capabilit*, mentioned at least in the title, in the

abstract, or as a keyword. As an additional constraint, we added the condition ‘scale OR

measure* OR survey OR empirical*’ to the query. The search revealed 325 articles of which

we excluded those that were from different fields (e.g., chemistry, biology), addressed DC

only theoretically without actually measuring them, or employed empirical measures other

than scales (e.g., secondary data, financial data, data from qualitative interviews). The result

was a collection of 125 articles presenting survey-based measures of DC.

Of the studies described in these articles, 75 employed surveys for specific examples for

DC (in the sense of Eisenhardt and Martin’s perspective) such as quality of the scientific team

(Deeds, DeCarolis, and Coombs, 2000), market disruptiveness capability (McKelvie and

Davidsson, 2009), market orientation (Ma and Todorovic, 2011), supplier-chain integration

(Fawcett et al., 2011; Vickery, Koufteros, and Droge, 2013), R&D capabilities (Singh,

Oberoi, and Ahuja, 2013), dynamic collaboration capability (Allred et al., 2011), alliance

management (Schilke, 2014), managerial capabilities (Townsend and Busenitz, 2015), new

product development (Barrales-Molina, Montes, and Gutierrez-Gutierrez, 2015), marketing

competence, R&D competence, technological competence, and customer competence

(Danneels, 2016), dynamic service capabilities (Raman and Bharadwaj, 2017), or networking

capability in supplier networks (Mitrega, Forkmann, Zaefarian, and Henneberg, 2017).

Another 22 studies (e.g., Cheng, Chen, and Huang, 2014; Drnevich and Kriauciunas,

2011; (Lee, Wu, Kuo, and Li, 2016; Marcus and Anderson, 2006; Monteiro, Soares, and Rua,
 12

2017; Wamba et al., 2017; Wu, 2010) investigated DC as an overall construct, without

distinguishing its dimensions. Of the remaining 28 studies where components of DC were

measured, 15 were based on newly developed own models or models other than Teece’s

(Agarwal and Selen, 2009; Ali, Peters, and Lettice, 2012; Battisti and Deakins, 2017; Cui and

Jiao, 2011; Hou and Chien, 2010; Jiao, Wei, and Cui, 2010; Karimi and Walter, 2015; Li and

Liu, 2014; Makkonen et al., 2014; Simon, 2010; Lin et al., 2016; Verreynne, Hine, Coote, and

Parker, 2016; Wang, Senaratne, and Rafiq, 2015; Wohlgemuth and Wenzel, 2016; Zheng,

Zhang, and Du, 2011).

The remaining 13 survey-based measures building on Teece’s view are listed in Table 1.

The table is split into two time periods: (i) January 1997 to December 2015, the time before

scale development, and (ii) January 2016 to January 2018, the time during scale development.

Scales from the first period, that is, before 2016 were taken into account for item generation.

===== Please insert Table 1 about here =====

As shown in Table 1, two measures in the first time period (rows 1 and 2; Pavlou and El

Sawy, 2011; Protogerou, Caloghirou, and Lioukas, 2012) and three measures in the second

time period (rows 8-10; Mandal, 2017; Pandit, Joshi, Gupta, and Sahay, 2017; Rashidirad,

Salimian, Soltani, and Fazeli, 2017) were derived from Teece et al.’s (1997) theoretical

assumptions, with only loose references to Teece’s (2007) concept.

The remaining eight measures (rows 3-7 and 11-13 in Table 1) build upon sensing,

seizing, and transforming capacities as conceptualized by Teece (2007). Thereof, Hawass’

(2010) measures reconfiguration (transforming) capacity but neglects sensing and seizing.

Naldi et al. (2014) include sensing and seizing, but not transforming, and Wilden and

Gudergan (2015) take into account sensing and reconfiguring, but not seizing.

Overall, five scales remain that employ scales for sensing, seizing, and transforming

capacities as conceptualized by Teece (2007) – two in the first time period (rows 6-7;
 13

Nedzinskas, Pundzienė, Buožiūtė-Rafanavičienė, and Pilkienė, 2013; Wilden, Gudergan,

Nielsen, and Lings, 2013 ) and three in the second time period (rows 11-13; Babelytė-

Labanauskė and Nedzinskas, 2017; Lopez-Cabrales, et al., 2017; Shafia, Shavvalpour,

Hosseini, and Hosseini, 2016).

Nedzinskas et al. (2013: 385) measure all three dimensions, sensing, seizing, and

transforming; they employ items ‘adapted from Teece (2007)’ but do not provide details on

the scale development process, the exact wording of the items, or the response format they

used. The main goal of Nedzinskas et al.’s work was to measure the impact of DC aspects on

SME performance, and not to systematically develop and test a DC scale. Also all of the three

articles from 2016 that report DC scales aim at linking DC with other variables: Babelytė-

Labanauskė and Nedzinskas (2017) predict R&D and innovation performance, Shafia et al.

(2016) explain competitiveness of research and technology organizations, and Lopez-Cabrales

et al. (2017) link the development of DC with characteristics of HR systems (2017). None of

them had the aim to develop a DC scale following a rigorous scale development procedure.

One study that explicitly intended to develop a DC scale following a systematic and

transparent scale development process and that includes all three dimensions – sensing,

seizing, and reconfiguring (transforming) – is Wilden et al.’ (2013) scale. (Part of the scale is

re-used in Wilden and Gudergan’ (2015) study, where the authors measure sensing and

reconfiguring activities, but not seizing.) Wilden et al’s (2013) scale was inspired by

Jantunen’s (2005) and Daneel’s (2008) measures of the sensing component and asks for

activities and processes, such as the adoption of new management methods and renewal of

business routines (Wilden et al., 2013: 80f) — for instance, ‘People participate in

professional association activities’ (sensing). The scale queries about the frequencies of these

activities (e.g., ‘How often have you carried out the following activities between 2004 and

2008?’) and provides response options from ‘rarely (1)’ to ‘very often (7)’. Besides its
 14

rigorous procedure of scale development, Wilden et al.’s activity- and frequency-oriented

approach (‘How often do you…?’) has another major advantage: Asking respondents what

they do frequently, may be less biased due to social desirability than asking respondents about

how good they are at something.

However, we argue that this activity- and frequency-oriented approach has also one

important limitation: Even if it provides an objective measure of the frequency of a certain

DC-related activity, this does not immediately indicate the actual outcome of that activity. For

example, frequent participation in professional association meetings (activity related to

sensing) does not necessarily result in high awareness of market trends (outcome of sensing-

related activity). An analogy from the world of music would be to ask a piano player, how

frequently she practices (activity), and take this as a measure for her capability to play the

piano. Hence, acknowledging the merits of Wilden et al.’s (2013) scale, we argue that a

perspective on outcomes of capabilities, or successfully established practices represents an

important complementary perspective to asking for frequencies of activities. In other words,

given that Wilden et al.’s (2013) scale still is the only instrument for measuring DC based on

Teece (2007) that has been developed in line with principles of a rigorous scale development

procedure, a systematically developed scale that measures DC outcomes constitutes a relevant

contribution to the field.

SCALE DEVELOPMENT

Overall procedure

Even if the suggested approaches for scale development (e.g., Churchill, 1979; Hinkin,

1995, 1998) differ in their details, they agree on the general process and quality criteria to be

taken into account. We integrated their methodological considerations and employed a three-

step procedure, which will be described in detail below. First, in the item-generation step, we

developed indicators that should reflect Teece’s (2007) sensing, seizing, and transforming
 15

capacities. To provide a complementary perspective to Wilden et al.’s (2013) scale, our items

should focus on the general existence of DC routines and outcomes (instead of frequencies of

DC activities).

We considered to start from existing (sub-)scales and combine them into one new

instrument that measures all of the aspects suggested by Teece (2007). However, we

encountered two obstacles, one conceptual and one methodical. As for the conceptual

obstacle, we realized that the different authors employed different interpretations (and implicit

definitions) of the DC dimensions. For example, both Hawass’ (2010), and Naldi et al. (2014)

compound seizing and transforming. As for the methodical problem, our review of the

existing subscales and items from different authors revealed that they are heterogeneous

regarding both the operationalization of capacities and the answering format (e.g., rarely (1)

to very often (7), Wilden et al., 2013; strongly disagree (1) to strongly agree (7), Hawass,

2010). Hence we concluded that a mere combination of subscales from different instruments

is not feasible, and that scale development requires (a) refined operationalizations of Teece’s

(2007) sensing, seizing, and transforming capacities, and (b) homogeneous phrasing of the

items in the different subscales with a focus on the actual presence of capacities.

Nevertheless, our aim was that the new scale builds on existing scales as much as possible.

In a second step of scale development, scale purification, we collected empirical data to

investigate the dimensionality of the scale by employing an exploratory factor analysis (EFA)

to assess the internal consistency of the sensing, seizing, and transforming subscales and to

remove items of low psychometric quality, if necessary. At this stage, we investigated which

factors the EFA would reveal and whether they correspond to the theoretically assumed DC

dimensions. We expected that the EFA would reveal distinct, robust factors representing the

three different capacities. Moreover, we expected (i) internal consistency within each factor to

be high, indicating that the developed items are measuring one and the same construct, and
 16

(ii) moderate subscale inter-correlations because the capacities were assumed to be distinct

but interrelated.

In a third step, scale confirmation, we collected data from a new sample to statistically

test and confirm the dimensionality of the DC construct as identified in the EFA by means of a

second-order confirmatory factor analysis (CFA; cross-validation of the factorial structure).

Moreover, in the scale confirmation step, we wanted to establish criterion validity by

predicting innovation and business performance criteria. We hypothesized (i) a significant

model fit of the factor structure that resulted in the EFA also in the second-order CFA; (ii)

positive regression coefficients for business and innovation performance criteria of moderate

magnitude, due to the indirect nature of the relationship between DC and firm performance;

and, (iii) moderately positive inter-correlations among the DC subscales.

Item generation (content validity)

Test-theoretical considerations

We regard DC as a multidimensional construct reflected by the conceptually independent but

interrelated capacities of sensing, seizing, and transforming. Further, we view DC as latent

capacities that manifest in observable routines and their outcomes. While previous researchers

have suggested measures for DC that ask for frequencies of activities that potentially

contribute to DC (e.g., ‘People participate in professional association activities’, Wilden et

al., 2013: 83; the item may contribute to sensing capacity but is not a necessary condition for

it), our items measure DC more directly by either asking for the outcome of the capability

(e.g., ‘Our company knows the best practices in the market’, indicating that sensing capacity

is high), or for routines that directly indicate the existence of the capability (e.g., ‘Our

company systematically searches for information on the current market situation’, indicating

that the firm has established systematic sensing routines). Because DC constitute

organizational phenomena, not individual ones, all items are formulated in a depersonalized
 17

way and ask for organizational instead of individual attitudes and outcomes (e.g., ‘We are

always up-to-date with market trends’ instead of ‘I am always up-to-date with market trends’).

Furthermore, rather than a dichotomous (‘have it’ or ‘have it not’) concept, DC should be

understood as continuous, allowing for more variable descriptions of the configurations of DC

of different firms (Barreto, 2010). Hence, as in most other DC scales, our items ask for

gradual responses, not ‘yes’ or ‘no’ answers. As the answering format, we chose a six-point

Likert scale ranging from ‘strongly disagree (1)’ to ‘strongly agree (6)’.

Operationalization of DC

Sensing

As outlined in the theoretical considerations above, we posit that an organization with high

sensing capacity is able to systematically, continuously, and reliably acquire strategically

relevant information from the environment, including market trends, best practices, and

competitors’ activities, that is, information from outside the organization. Related concepts to

sensing capacity have used the terms knowledge acquisition (e.g., Jantunen, 2005) or

environmental scanning (e.g., Danneels, 2008). The systematic monitoring of the environment

increases the chances of becoming aware of upcoming markets, trends, and technology

developments and of tapping into new business areas (Daft, Sormunen, and Parks, 1988).

Thereby, sensing may take place via different channels, such as specialist literature or

participation in networks of knowledge (Danneels, 2008), and it may take place formally

(e.g., in dedicated processes) or informally (e.g., by chatting with customers). To

operationalize sensing capacity, we built on existing scales by Danneels (2008), Makkonen et

al. (2014), Wilden et al. (2013) and Jantunen (2005), but we adapted items to focus on

established routines and outcomes. For example, we developed items asking for the extent to

which the organization is up-to-date on the current market situation, or to which the

organization knows how to access new information (see Table 2).

 18

Seizing

Further concretizing Teece’s (2007) definition, we assume that the capacity for seizing within

an organization is high if it is able to decide whether some information is of potential value, to

transform valuable information into concrete business opportunities that fit the organization’s

strengths and weaknesses, and to make decisions accordingly. To operationalize seizing, we

built on the content of existing scales but, for several reasons, could not directly reuse existing

items: Naldi et al. (2014) do not use actual survey items but other proxies (e.g., number of

newsletters a firm subscribed to). Jantunen (2005), and Makkonen et al. (2014) measure

seizing but combine it with sensing. Nedzinskas et al. (2013) employ items for seizing but do

not report them. We also integrated contents from scales for measuring absorptive capacity,

such as Flatten et al. (2011), but adapted the items to the aspect of seizing. To measure

seizing, we employed items such as ‘We recognize what new information can be utilized in

our company’, or ‘Our company is capable of turning new technological knowledge into

process and product innovation’.

Transforming

In line with Teece’s (2007) ideas, we assume that an organization with a high transforming

capacity consistently implements decided renewal activities by assigning responsibilities,

allocating resources, and ensuring that the workforce possesses the newly required

knowledge. To operationalize transforming capacity, we reviewed existing reconfiguration

and transforming (sub-)scales. Of the scales building on Teece’s model, Nedzinskas et al.

(2013) do not report items. Hawass’ (2010) reconfiguration scale focuses on the consequences

of the transformation rather than on the transformation itself (e.g., ‘We are more successful

than competitors in diversifying into new markets by deploy [sic!] in existing technologies’;

426). Wilden and Gudergan (2015) ask for the frequency of how often specific activities have

been carried out (e.g., frequency of modifications in strategy, frequency of renewal of

 19

business processes) as an indicator of transforming capacity. None of these scales explicitly

asks for the capacity for transforming processes and structures within an organization. One

scale that measures transforming capacity more directly is Li and Liu’s (2014) change

implementation subscale. However, their items focus on conditions for transforming (e.g., ‘We

help each other in strategic change implementation’), not on its outcome. Our

operationalizations of transforming capacity focus on how successful strategic renewal is

actually implemented and achieved within the organization, and includes items such as

‘Decisions on planned changes are pursued consistently in our company’, or ‘By defining

clear responsibilities, we successfully implement plans for changes in our company’.

Item pool and preliminary scale

Based on the refined definitions, we developed a preliminary scale in two main stages: (1)

theory-based development of an initial item pool by a group of five researchers in the field of

DC (including three of the co-authors of this manuscript); and (2) refinement of wording, and

reduction of redundancy through expert opinions. The items were developed in German

language (targeting a German-speaking audience). Later, the scale was translated into English

by a team of native English- and German-speaking researchers.

In the strongly theory-based step (1), an initial pool of 21 items was developed by the

five researchers with the aim to formulate indicators that would reflect each of the three DC

dimensions. This phase required extensive engagement with the DC literature, and with

existing DC scales. When formulating the items, the following challenges had to be

addressed: (a) The items should be generic in the sense that they could be applied to a broad

range of industries and thus could not include industry-specific aspects (such as regularly

visiting trade fairs, as an aspect of sensing), while at the same time remain understandable and

answerable; (b) The scale should be economic in that it should contain only a few items per

subscale (and thus could not include every single aspect of a DC dimension), while at the
 20

same time reflecting the DC dimension well. Regarding inter-rater agreement, only such items

were considered where all five researchers agreed that they reflected an important aspect of

Teece’s original concept.

The aims of phase (2) were to augment content validity (Rossiter, 2008), enhance

comprehensibility, and minimize perceived redundancy of the items developed in the first

phase. Therefore, we conducted a first systematic walkthrough with an experienced top-level

manager from a large firm in the IT industry. In a simplified version of the cognitive lab

technique (Wilson, 2004), the manager was asked to express his spontaneous associations and

to comment on the process of choosing an answer to ensure comprehension, logic, and

relevance. The results were documented and built the basis of another round of discussion

amongst the five researchers. In the course of this discussion, the items were slightly

rephrased based on the managers’ feedback regarding comprehensibility, thereby ensuring that

they were still in line with theoretical assumptions (e.g., ‘In our company, anything new is

easily transformed into ideas for changes’ was rephrased into ‘Our company is capable of

turning new technological knowledge into process and product innovation’). Moreover, items

that were asking for the same information according to the manager were re-considered and

merged, if necessary, reducing the overall number of items to 19. Then, a second walkthrough

was carried out with another experienced manager, the CEO of a small business, who again

provided feedback on the items by ‘thinking aloud’. Also, the second manager’s responses

were documented for further discussion amongst the team of researchers. The subsequent

final round of discussion led to further slight rephrasing, and a reduction of items that were

asking for the same information (e.g., ‘We do not miss new developments that could have an

influence on our business’ and ‘Our company is up-to-date on the current market situation’),

resulting in a ‘final’ preliminary scale of 16 items.

Scale purification (dimensionality and internal consistency)

 21

Data collection

The purpose of the scale purification study was to explore the dimensionality (i.e. the

presumed three-factor structure) and internal consistency (i.e. whether all items load high on

the intended sub-scales, and low on other sub-scales) of our scale. Concretely, we were testing

if all items would meet the high test-theoretical criteria we employed, in order to purify the

scale, if needed. At this stage, the following test-theoretical considerations were underlying

our sampling strategy: (a) the scale should basically be applicable to firms in all industries; (b)

the scale should be applicable regardless of firm size. Moreover, if there is large variance in

the data, especially variations in configurations of capabilities, a factor analysis reveals more

robust factors. Thus, a sampling strategy was chosen that should ensure maximum variance in

the data, both with regard to industries and with regard to firm size.

Variables

We developed an electronic questionnaire which included the 16 items of the three sub-scales

sensing, seizing, and transforming (see Table 2). Moreover, we queried the firm size, firm age,

position of the respondents, and industry at the end of the questionnaire.

Setting and respondents

For the pilot study, we had the opportunity to distribute an electronic version of the

preliminary scale to 100 CEOs of randomly selected firms (50 small and 50 large firms) in

each of the seven sections of the Austrian Federal Economic Chamber (i.e., in total 700

firms). Each recipient in this pilot study was asked to complete the survey and to forward it to

other persons in leading positions in their own industry network. This snowball-sampling

technique should increase the number of responses within sectors by invitation of other CEOs

through their peers. While the drawback was that we could not track the number of forwards

to other respondents, the snowball-sampling was efficient, as it revealed 269 complete

responses.
 22

Of these 269 questionnaires, 29.6 percent had been completed by CEOs, 35.9 percent by

senior executives, and the remaining 34.6 percent by other staff members in leading positions.

Approximately half (51.1 %) of the companies had fewer than 250 employees. Most

respondents (79.4 %) worked for a company that was 10 or more years old. The distribution

within the industrial sectors of the Austrian Federal Economic Chamber of those who

indicated their industries was as follows: 11.0 percent bank and insurance, 13.3 percent crafts

and trades, 11.9 percent commerce, 22.5 percent industry, 25.7 percent information and

consulting, 11.9 percent tourism and leisure industries, and 3.7 percent transportation and

communications. Overall, the goal of the sampling strategy to maximize variety across firm

sizes and industries was achieved.

Analyses and results

To investigate the factorial structure of the scale, we employed an EFA with principal

component analysis, an extraction method that uncovers the pattern of inter-item relationships

(Thompson, 2004). The EFA was employed to reconstruct the underlying structure of the DC

concepts in an exploratory manner, and to develop an initial understanding of whether the

model structure had substantial deviations from the intended structure (i.e. whether the items

loaded on others than the theoretically assumed factors, or on multiple factors). Only factors

with an eigenvalue greater than 1 were considered, to ensure that each factor explained more

variance than any single item. Oblique rotation was used to achieve better interpretability.

This rotation is indicated when factors are expected to be correlated (Thompson, 2004), as we

assumed it to be the case for dimensions of DC.

The principal component analysis yielded three distinct factors – sensing (SE), seizing

(SZ), and transforming (T) – accounting for approximately 66 percent of the inter-item

variance. Table 2 displays all loadings above 0.3 in the EFA. As observed from Table 2,

except two items that showed factor cross-loadings (SE6 and T6), each item loaded high on
 23

the intended factor and not on other factors. All items without cross-loadings reached factor

loadings above 0.6, with 0.5 being the recommended cut-off value for exploratory research

(Nunnally, 1978). Altogether, these findings reveal that the scale has good factorial validity.

===== Please insert Table 2 about here =====

Then, we purified the preliminary scale by removing the two items with cross-loadings

from the subscales. Of the remaining 14 items, five measured sensing, four seizing, and five

transforming. To assess the reliability (internal consistency) for each of the subscales and the

overall scale, we calculated Cronbach’s alpha (Cronbach, 1951) coefficients (Table 3).

Because an alpha above 0.8 is regarded as good and that above 0.9 is regarded as excellent—

and because all alpha coefficients of the subscales range from 0.83 to 0.88 and the overall

alpha coefficient is 0.91, the reliability of the scale can be seen as good to excellent. As

expected, pairwise subscale inter-correlation coefficients were moderate to high, ranging from

0.49 to 0.66 (Table 3; all coefficients are significant with p < 0.01). These findings indicate

that the subscales for sensing, seizing, and transforming measure highly related constructs.

===== Please insert Table 3 about here =====

Scale confirmation (factorial validity and criterion validity)

The purpose of the scale confirmation study was twofold. First, we wanted to cross-validate

and confirm the factor structure of our DC scale on a new sample (factorial validity). Second,

because DC have been closely related with strategic renewal, which again is a predictor for

business performance, we aimed at testing whether the DC subscales would be able to predict

diverse performance outcomes (criterion validity). While the sampling strategy in the scale

purification study was driven by methodical (test-theoretical) considerations, in the scale

confirmation study we targeted firms from industries facing elevated environmental

dynamism and, hence, an augmented need for strategic renewal – those firms for which the

concept of DC was originally developed by Teece et al. (1997).

 24

Data collection

Variables

In addition to the 14 items of the DC scale, and the firm size, firm age, industry and the

position of the respondents (at the end of the scale), our electronic questionnaire in the scale

confirmation study contained items measuring business and innovation performance and

international orientation.

Business performance was assessed with 12 standard items based on Hult, Hurley, and

Knight (2004), Wiklund and Shepherd (2005), and Ottenbacher (2007), with always three

items addressing market performance (attraction of new customers; opening of new markets;

development of market shares), customer-related performance (image; customer satisfaction;

customer loyalty), financial performance (growth in sales; growth in profits; profitability),

and employee-related performance (employee satisfaction, employee commitment; long-term

staff membership/low employee fluctuation). All business performance items had to be

appraised relative to the most important competitors on a six-point Likert scale ranging from

‘much worse than the most important competitors’ (1) to ‘much better than the most

important competitors’ (6).

Innovation performance was measured with five standard items (I1: Percentage of sales

from innovations introduced on the market within the past three years; I2: Percentage of

profits from innovations introduced on the market within the past three years; I3: Number of

innovations introduced on the market within the past three years; I4: Innovation expenditure

in percentage of sales; I5: Percentage of costs saved by implementing process innovations)

suggested by Dömötör, Franke and Hienerth (2007). I1 and I2 were queried on a ten-point

scale ranging from 0 to 100 percent; I3, I4, and I5 were assessed on six-point scales with

constant intervals.
 25

For validation purposes and potential future research, we also included items measuring

the firm’s international orientation, which could later serve as a marker variable to test the

extent of common method variance (Richardson, Simmering, and Sturman, 2009).

International orientation was measured with four standard items (Knight and Kim, 2009)

asking about the firm’s mission, focus, culture, and resources with regard to international

markets (answers ranging from ‘strongly disagree (1)’ to ‘strongly agree (6)’).

Setting and respondents

To reach firms from innovative industries, we reviewed the standard industry classification in

the European Union, Nomenclature statistique des Activités économiques dans la

Communauté Européenne (NACE) together with the results of the Eurostat community

innovation survey (CIS) 2014 (Eurostat, 2014) and selected sub-classes of industries that are

facing rather high environmental dynamism and innovative enterprises, namely classes C to

K, M, and Q. Based on contact information in the standard Austrian firm database Aurelia, we

contacted 5229 companies within these sub-sections via e-mail. We specifically addressed the

CEOs or middle-line managers responsible for innovation issues.

We received 307 fully completed questionnaires, a response rate of 5.9 percent. Even if

it is rather low, this response rate is of similar magnitude as, and the absolute sample size

exceeds that of other, comparable DC studies (e.g., Wilden et al., 2013 received 228 fully

completed surveys, a response rate of 8.3 percent; Nedzinskas et al., 2013, obtained 360

responses through phone calls; Hawass, 2010 had a response rate of 13.8 percent, an absolute

sample size of 83 surveys). The slightly lower response rate compared to the other studies is

plausible given that in our case most of the e-mail addresses in the Aurelia database were

office addresses (and not the personal e-mail addresses of the CEOs etc.), and that we did not

(additionally) call participants in order to ask them for participation.

 26

Of our 307 fully completed questionnaires, 188 had been filled by CEOs, 97 by senior

executives, and 22 by other staff members in leading positions. Most (84.7 %) of the

companies had fewer than 250 employees, and most (85.7 %) of the respondents worked for a

company that was ten or more years old. The distribution across industries was as follows:

18.6 percent belonged to the manufacturing industry (NACE category C), 1.0 to energy

supply (D), 1.0 to water supply (E), 15.0 to construction (F), 10.1 to wholesale and retail trade

(G), 6.8 to transportation and storage (H), 8.5 to accommodation and food services (I), 10.1 to

information and communication industries (J), 3.6 to financial and insurance branches (K),

17.3 to professional scientific and technical activities (M), and 8.1 to human health and social

work activities (Q).

We compared the distribution across size, age, and industries of firms in our sample

with characteristics of the population in the Aurelia database. The non-significant χ² test

reveals that our sample is true to scale regarding firm size (χ² = 1.96, df = 1, p = 0.194): Of the

originally contacted firms, 81.2% of the firms had fewer than 250 employees. Regarding firm

age, the test (χ² = 6.72, df = 1, p = 0.010) indicates a rather small deviation from the

distribution in the population: Of the contacted firms, 91.2% were ten or more years old.

Regarding the distribution across industries, the according χ² test was significant (χ² = 79.70,

df = 10, p < 0.001) due to deviations from the original population in two (out of eleven

surveyed) industries: In our sample, the information and communication industries are

overrepresented (only 4.6% of the contacted firms were classified as J), while the

manufacturing industries are underrepresented (35.1% of the contacted firms were classified

as C). The reason may be that firms in the information and communication industries are

more likely than average firms to participate in electronic surveys while manufacturing

industries are less likely than other firms to do so. In summary, we assume that the structure
 27

of the sample reflects the structure of the contacted firms fairly well regarding the distribution

across size, age, and industry.

Analyses and results

Confirmation of the factor structure

We conducted a second-order CFA using AMOS 18 and maximum likelihood estimation to

test the theoretical assumptions that (a) the items of our scale capacities loaded on the three

factors identified in the EFA (sensing, seizing, and transforming) and (b) the three capacities

(first-order constructs) reflected facets of an overall DC capacity (second-order construct). As

recommended (e.g., Thompson, 2004; Hu and Bentler, 1999), we computed several

descriptive (normed fit index, NFI; comparative fit index, CFI; incremental fit index, IFI;

Tucker-Lewis Index, TLI; standardized root mean squared residual, SRMR) and inferential

statistics (χ² and root mean square error of approximation, RMSEA). With NFI = 0.94, CFI =

0.97, IFI = 0.97, TLI = 0.96, and SRMR = 0.04, the descriptive indices reveal an adequate fit

(Bentler and Bonett, 1980; Hu and Bentler, 1999, Marsh, Wen, and Hau, 2004; Thompson,

2004). In addition, the inferential statistics indicate a reasonably good model fit (χ² = 158.18,

df = 76, p < 0.000, χ²/df = 2.08; Byrne, Shavelson and Muthén, 1989). Also, the RMSEA value

is 0.06 (p-close = 0.07), as recommended for a close inferential model fit (Browne and

Cudeck, 1992).

===== Please insert Figure 1 about here =====

Figure 1 displays the factor loadings of each item and squared multiple correlations of

the three first-order factors. As observed from Figure 1, all composite reliabilities (CR) are

0.85 or higher. The squared multiple correlations (R²) of the three dimensions and the

indicator reliabilities for each item exceed the recommended minimum of 0.4 (Bagozzi and

Baumgartner, 1994; Figure 1). Altogether, the findings confirm the theoretically assumed

structure in the data and imply a high factorial validity of our scale.
 28

Table 4 shows the alpha reliabilities (Cronbach, 1951) of the subscales and the subscale

inter-correlations. Alpha coefficients are 0.84 (sensing), 0.84 (seizing), and 0.87

(transforming), indicating high internal consistencies. As in the scale purification study, the

overall alpha coefficient is 0.91. As in the scale purification step, the pairwise coefficients for

subscale inter-correlations are high (ranging from 0.50 to 0.70), indicating that the subscales

for the sensing, seizing, and transforming capacities measure distinct, but strongly related

constructs.

===== Please insert Table 4 about here =====

Regarding internal convergent validity, the average extracted variances per factor (AVE)

ranging from 0.59 to 0.63 exceed the recommended value of 0.5 for good convergent validity

(Fornell and Larcker, 1981), suggesting that the items assigned to one and the same factor

measure one underlying construct. To establish the internal discriminant validity Fornell and

Larcker (1981) suggest that, for any two constructs, the AVEs should be greater than the

shared variance obtained from the square of the correlation between these two constructs. As

can be seen from Table 4, the sub-dimensions of the DC scale fulfill this criterion, because all

AVEs are higher than any squared correlation between the sub-dimensions. The sub-

dimensions, thus, can be assumed to be sufficiently different, indicating internal discriminant

validity.

Potential method biases

Even though we were striving for maximum rigor during the process of scale development,

our approach to data collection contains the possibility of biases due to systematic

measurement error, because our findings are based on self-reported measures, and all

information for one case (i.e. one firm) stems from one respondent (Podsakoff, MacKenzie,

and Podsakoff, 2003). To test for common method bias, we employed a CFA Marker

Technique (Richardson, et al. 2009; Williams, Hartman, and Cavazotte, 2010) based on
 29

structural equation modeling, with international orientation (IO) as marker variable. One

major advantage of this technique is that it allows evaluating method variance on both model-

and item-level. In the marker-based procedure, a baseline model, where the method factor

loadings are forced to be zero (i.e. a model without method factor loadings), is compared with

a constrained model, where the method factor loadings are constrained to have equal values,

and an unconstrained model, where the method factor loadings are estimated. The result of

the χ² difference test between the baseline model and the constrained model reveals significant

differences (χ²dif = 98.67, df = 1; p < 0.000, n = 187), indicating the existence of a method

factor. The comparison of the constrained model and the unconstrained model (χ²dif = 147.10,

df = 14; p < 0.000, n = 187) shows that the impact of the marker variable is not equal across

items (loadings are ranging between 0.18 and 0.38). Of the three models, the unconstrained

model accounts best for marker variance related to the items of the scale (model fit: χ² =

191.44, df = 126; χ²/df = 1.52, p < 0.000, CFI = 0.97, RMSEA = 0.05, n = 187). Despite the

method factor in the unconstrained model, all items also load significantly on the DC

constructs (sensing, seizing, transforming) they intend to measure, and the model yields a

good overall model fit. The median amount of method variance attributable to the marker

variable is 9 percent, but the item loadings on the DC dimensions are still very high (ranging

from 0.60 to 0.80). Altogether, these results seem more than acceptable, as measures in

psychology, sociology, marketing, business, and education have been found to contain on

average even about one quarter (26 percent) of method variance (Cote and Buckley, 1987).

To test for non-response bias, we carried out a median split of early and late respondents

(independent variable) and calculated t-tests with sensing, seizing, and transforming

(dependent variables). The tests revealed non-significant effects for sensing and seizing, and a

significant effect of small effect size (Cohen’s d = 0.21; Cohen, 1988) for transforming

(t=1.99; p<.05), indicating that early respondents had slightly higher values (M=4.45;
 30

SD=0.85) than late respondents (M=4.28; SD=0.80) as regards this one sub-scale. From these

findings, we conclude that there is no overall systematic non-response bias.

Criterion validity

To test the criterion validity of our scale, we employed the mean values of the sensing,

seizing, and transforming capacities as predictors of business performance and innovation

performance in linear regression models (for descriptive statistics, see Table 4). We conducted

an ordinary least squares regression analysis (Gelman and Hill, 2007) to control for

demographic variables (i.e., firm age and firm size) and the partial correlations between the

dimensions sensing, seizing, and transforming. In all calculations, we entered the

demographic variables in the first block and the dimensions of DC in the second.

As Table 5 shows, the regression model for business performance explains 33 percent

(adjusted R²) of the variance in the aggregate index of business performance. It also explains

substantial variance of the distinct aspects of business performance, namely 30 percent of

market performance, 17 percent of financial performance, 29 percent of employee-related

performance, and 17 percent of customer-related performance.

===== Please insert Table 5 about here =====

Of the demographic variables, the firm’s age has a significant, slightly negative effect

on aggregate (b = -0.04; p < 0.01) market (b = -0.06; p < 0.01) and financial performance (b =

-0.06; p < 0.05), indicating that as the firm’s age increases, its overall, market, and financial

performance decrease in comparison with its most important competitors. The firm’s size has

a statistically significant, slightly negative effect on customer-related performance (b = -0.06;

p < 0.05), indicating that as the firm’s size decreases, customer-related performance increases.

However, the b weights for both firm age and firm size are very low, indicating that in all,

firm age and size do not seem to have much predictive power for business performance.
 31

In contrast, DC are strong predictors of business performance: Sensing capacity

significantly predicts overall business performance (b = 0.18; p < 0.01), market performance

(b = 0.20; p < 0.01), financial performance (b = 0.26; p < 0.01), and customer-related

performance (b = 0.15; p < 0.05). Seizing capacity shows high predictive power for overall

business performance (b = 0.19; p < 0.01), market performance (b = 0.17; p < 0.05), financial

performance (b = 0.20; p < 0.05), employee-related performance (b = 0.21; p < 0.01), and

customer-related performance (b = 0.18; p < 0.05). Transforming capacity has a highly

significant positive effect on aggregate business performance (b = 0.23; p < 0.00), employee-

related performance (b = 0.37; p < 0.00), market performance (b = 0.23; p < 0.00), and a

slightly significant effect on customer-related performance (b = 0.18; p < 0.05). The overall

model explains substantial variance, and all subscales—search, seizing, and transforming—

significantly predict different business performance aspects.

The regression model for innovation performance explains between 12 and 20 percent

(adjusted R²) of the variability in different innovation performance aspects (Table 5).

Regarding demographic variables, the firm’s size is a positive predictor of the sales revenue

from new products (I1, b = 0.15; p < 0.05) and the percentage of costs saved by implementing

process innovations (I5, b = 0.14; p < 0.001): as the firm’s size increases, so do the sales

revenue from new products and the percentage of costs saved through process innovations.

The firm’s age has a highly significant negative effect on the percentage of the 2013 sales

revenue from innovations (I1, b = -0.30; p < 0.00), the 2013 profit from innovations (I2, b = -

0.24; p < 0.00), the percentage of R&D expenditure (I4, b = -0.21; p < 0.00), and the

percentage of costs saved within one year by implementing process innovations in 2013 (I5, b

= -0.12; p < 0.00).

The findings concerning DC reveal a number of interesting insights. Seizing capacity is

highly positively associated with all innovation performance indicators: It predicts the
 32

percentage of sales revenue from innovations introduced (I1; b = 0.63; p < 0.00), profits from

innovations introduced (I2; b = 0.61; p < .00), the number of innovations introduced on the

market (I3; b = 0.51; p < 0.00), the percentage of innovation expenditure in R&D (I4; b =

0.67; p < 0.00), and the percentage of costs saved by implementing process innovations (I5; b

= 0.29; p < 0.05): as firms improve at deciding which innovations are compatible with them,

they spend more on R&D, introduce more innovations, gain more sales revenue and profit

based on innovation, and reduce costs through process innovation. Surprisingly, transforming

capacity explains no variance in innovation performance. (All coefficients are not significant.)

Sensing capacity even has a negative effect on both the percentage of sales (I1; b = -0.34; p <

0.05) and the percentage of profit (I2; b = -0.33; p < 0.05) from innovations. One possible

explanation for this unexpected finding is that sensing capacity, as operationalized in our

scale, measures responsive market orientation rather than proactive market orientation

(Narver, Slater, and MacLachlan, 2004). Following this line of argument, firms with a high

awareness of market trends, customer needs and so forth may be more prone to adopt existing

trends instead of creating new ones.

Overall, these findings also indicate the criterion validity of the DC scale with regard to

innovation performance: The employed regression model explains the substantial variance of

different innovation performance indicators (particularly innovation expenditure in R&D),

and particularly the dimension of seizing seems to be strongly positively related to multiple

aspects of innovation performance.

DISCUSSION

In the previous sections, we have documented our endeavor to systematically develop a

scale for measuring DC as conceptualized by Teece (2007). We will now discuss (a) the

psychometric quality of the developed scale, (b) implications for developing the concept of

DC further, and (c) benefits and drawbacks of our scale compared to other instruments.
 33

Psychometric quality of our scale

Even if it may have to be developed further to become a standardized measure, our DC scale

already met all psychometrical standards in its current form: both the overall scale and its

subscales showed high reliability (alpha coefficients) in two different samples. Validity was

also high; the theoretically assumed three-factor structure was identified in the exploratory

factor analysis (scale purification step) and confirmed with the cross-validation in a new

sample (scale confirmation step). Finally, the suggested DC scale showed solid criterion

validity; it explained substantial amounts of variance in business and innovation performance

criteria.

In both the scale purification and scale confirmation study, we found high pairwise

inter-correlations among the sensing, seizing, and transforming subscales. Although this could

have indicated a threat to construct validity (i.e., the subscales may not measure distinct

dimensions of DC), the findings in the regression analyses clearly demonstrate that the

subscales predict different facets of business and innovation performance. Hence, it can be

concluded that the subscales measure different, analytically distinct but functionally related

aspects of one and the same concept—as theoretically assumed in the DC literature.

As all empirical research, our study has several limitations. One limitation that we have

identified in the scale confirmation study is that assessing DC with our scale – as holds for

most of the scales in social research – contains a certain extent of method variance (common

method bias). The degree of common method bias – 9 percent in our study – however, seems

acceptable given an estimated method bias of 26 percent in other areas of social research

(Cote and Buckley, 1987); the tested model still yields a good fit as specified by all relevant

indices, and all items still load substantially on the intended DC dimensions.

Another limitation is that business and innovation performance criteria as collected in

the scale confirmation study are based on survey data instead of financial hard facts, such as
 34

actual figures on R&D expenditure or sales revenue from innovations. Even though previous

research has found high correlations between self-assessed and objective performance data

(e.g., Dess and Robinson, 1984; Wall et al., 2004), to increase the validity of the measures for

these external criteria, future scale validation activities should think of ways to include more

objective data on business and innovation performance.

One further potential limitation that we share with similar studies in the area of DC

(e.g., Wilden et al., 2013) is that of a small response rate (5.9 percent) in the scale

confirmation study. The means and standard deviations we obtained may be biased in the

sense that they only reflect the views of persons who are interested in DC and strategic

renewal, or survey research. Although they may suffice for construct validation purposes, our

data may not be useful for drawing conclusions on the ‘true’ extent of DC of each firm

involved, and the means and standard deviations may not be representative for the whole

population. Moreover, in our sample, the manufacturing industry (C) is underrepresented,

while information and communication industries (J) are overrepresented, and older firms are

slightly overrepresented. To standardize the scale (e.g., in order to diagnose high vs. low DC)

and to provide information on expected values, confidence intervals, and so forth, further

research is required that involves a sample that is not biased through self-selection.

Theoretical implications for further developing the concept of DC

Building on earlier work, in their extensive review, Schilke et al. (2018: 416) came to the

conclusion that ‘[n]ow may also be a good time to move beyond these established procedural

typologies and enrich the dynamic capabilities framework with additional organizational

processes that may have been previously overlooked’. We are convinced that scale

development is one important vehicle to move beyond existing typologies: The

operationalization of a concept into concrete items requires clear, consistent definitions; vice

versa, through empirical testing of the factor structure of a scale, and correlations of its
 35

subscale with other variables may provide starting points for conceptual refinement. Our

research serves as an example for this mutual relationship of test construction and theory

development. The most salient result is that Teece’s theoretically assumed DC dimensions

were empirically shown to form three different factors that predict different business

performance criteria. Furthermore, our findings point to several potential avenues for further

refining Teece’s (2007) framework. For example, as mentioned above, one interpretation for

sensing being negatively related to sales revenues and profits from product innovation is that

the operationalization we chose measures responsive market orientation rather than proactive

market orientation (Narver et al., 2004) and, using Wang and Ahmed’s (2007) terminology,

that firms that are well aware of market trends, and customer wishes might develop an

adaptive, instead of an innovative, capability. Another subscale could be developed for

measuring proactive market orientation, for instance, by asking about the awareness of future

business opportunities and latent customer needs, rather than current ones.

Seizing capacity was found to be positively associated with all performance indicators,

thereby having the highest beta weights for the percentage of sales from innovations, the

percentage of profits from innovations, and innovation expenditure in R&D. Amongst the DC

facets, seizing had the highest predictive power with regard to all measured performance

indicators. This seems plausible, as seizing is the capacity that is most closely linked to a

strong strategy and is also in line with Teece’s (2007) view of seizing as the capacity for

making investment decisions based on business opportunities that fit the firm’s strengths.

Transforming capacity, as defined in our scale, is positively associated with aggregated,

market, customer-related, and employee-related performance, but it does not predict

innovation performance indicators. This result may be due in part to our items’ focus on the

capacity for transforming organizational processes and structures but not on the

transformation of human resources in the sense of employee knowledge and skills, which
 36

might have been a more effective predictor of innovation performance. The aspect of resource

transformation capacity—as, for instance, partly reflected in Makkonen et al.’s (2014)

learning capability subscale—might, therefore, be included as a subscale in future versions of

the scale. Notably, as firms become better at transforming, employee satisfaction and

commitment, as well as customer satisfaction increase. The validity of these relationships and

their causal direction— for example, whether a more satisfied staff is better at implementing

planned changes or whether the successful implementation of planned changes increases staff

satisfaction—will remain subject to future analyses.

As we have described in the theoretical considerations underlying dimensions of DC,

some scholars have argued that Teece’s (2007) sensing concept may have an external and an

internal aspect; internal sensing would be required to identify the need (or opportunities) for

adaptation and change based on information from within the firm. The necessity of reflection

and articulation of implicitly held knowledge for learning, continuous optimization, and

renewal has also been recognized by strategic management scholars (e.g., Hodgkinson and

Healey, 2011), especially in the context of strategic alliances (e.g., Kale and Singh, 2007), and

in the context of developing multiple capabilities at the same time (Bingham, Heimeriks,

Schijven, and Gates, 2015). Integrating the aspect of reflection into Teece’s model could be an

interesting way forward.

Other ways of measuring DC

To date, according to Schilke et al. (2018), about one third of DC studies have employed

survey scales. However, as we have outlined, Wilden et al.’s (2013) scale is the only

instrument for measuring DC as conceptualized by Teece (2007) that has been developed in

line with the highest standards of scale development. In comparison with our own scale,

Wilden et al.’s (2013) scale has the benefit that it may reduce social desirability or

misjudgments by asking for frequencies of DC activities. Nevertheless, as we have

 37

extensively argued in the theory section, an additional outcome-oriented approach is needed.

Hence, our DC scale can be seen as a complement to Wilden et al.’s scale: Even if the scale

developments varied in their detailed procedures, Wilden et al.’s and our scale are comparable

with regard to methodical rigor, sample size, and also with respect to the high psychometric

quality criteria they both achieved. Both scales have also been successfully applied to show

relationships between DC aspects and various kinds of performance. The presence of two DC

scales that take two perspectives – a frequency/activity oriented perspective (Wilden et al.’s

scale) and an outcome-oriented perspective (our scale) – now opens up multiple avenues for

triangulation in future research. For example, one interesting next step would be to investigate

the link between DC activities, DC outcomes, and various kinds of firm performance.

Other ways than surveys have been employed to measure DC. For example, scholars

have used proximal measures as indicators for DC as a remedy to potential informant biases

(above all, social desirability). In this context, Stadler et al. (2013) looked the level of certain

oil drilling capabilities to infer an oil firm’s level of ‘technological sophistication’, which

then served as a proxy to DC; the rationale behind the proxy they employed is the assumption

that a high level of technological sophistication would imply a high level of DC. Another

recent example is Girod and Whittington’s (2017) study that used proxies for measuring

reconfiguration capacity: They counted numbers of structural reconfigurations within a firm

under consideration (e.g., number of additions of new business units, number of re-

combinations of units, split of business units) and treated the number of reconfigurations

within one year as a continuous measure of reconfiguration capacity. These examples

illustrate both, advantages and limitations of a proxy-based measure of DC compared to a

survey scale. Clearly, the main advantage (in both cases where proxies were used) is that they

provide an objective, unbiased picture of ‘what is going on’ within an organization, regardless

of (socially-) desirable outcomes. Besides the fact that such data are hard to collect in many
 38

cases, one disadvantage is that proxies can be highly specific to the firm or industry (as in

Stadler et al.’s 2013 case), thereby limiting their applicability as a measure in other

businesses. Another potential limitation is that they may measure DC very indirectly. To take

Girod and Whittington’s (2017) example, frequently changing a business’s structure may

require (and thus indicate) transforming capacity; nevertheless, as Arend and Bromiley (2009)

argued, not changing does not necessarily imply an incapacity to change.

In conclusion, all methods for measuring DC – frequency and activity-based surveys

(e.g., Wilden et al., 2013), proxy-based measures (e.g., Stadler et al., 2013; Girod and

Whittington, 2017), and our outcome-oriented survey – have their benefits and drawbacks,

and none of them will be the ‘answer to everything’. Instead, as suggested by Schilke et al.,

(2018), mixed-method approaches (e.g. combining proxy-based studies with survey-based and

other measures) should be applied to take advantage of each methods’ strengths while

balancing their limitations. Moreover, future methodical research could also investigate

correlations between different types of instruments, to work towards standard measures in the

area of DC.

CONCLUSION AND FUTURE OUTLOOK

The starting point of our research was the claim for a more standardized approach to

measuring DC. As yet, no agreed-upon scale yet exists for measuring dimensions of DC, and

hardly any of the scales employed in quantitative studies so far have been developed

following a rigorous process of scale development. We contribute to DC research by

providing a first version of a DC scale based on Teece’s (2007) model of sensing, seizing, and

transforming, focusing on outcomes of latent capacities (e.g., how good is the firm at sensing

new trends) instead of frequencies of activities (e.g., how and how often do they search the

environment). Because of the cross-validation of the factor structure found in the exploratory

factor analysis, the rather large sample size (269 for scale purification and 307 for scale
 39

confirmation) and the large variety of performance indicators, we conclude that the scale is

already of high psychometric quality (different forms of reliability and validity) in its current

version. Nonetheless, it should be employed and further improved in future scale development

processes.

Our work implies several avenues for future research. We discussed the outcomes from

the confirmation study against the backdrop of our concrete item operationalizations and

elaborated on possible alternative findings if other aspects of the same capacities (e.g.,

sensing, transforming) had been operationalized. These provide the basis for potential

additional aspects that could be integrated to further refine the DC scale. For example, sensing

could be extended by proactive market orientation, process innovation could be highlighted

more in the operationalizations of the seizing subscale, and the aspect of transforming firm

resources (e.g., through learning and development) could be included in the transforming

subscale. Their inclusion could also contribute to a step-wise refinement of the assumptions

underlying Teece’s (2007) model. Moreover, in a next step, external construct validity should

be established by comparing the outcomes of the scale with similar scales (convergent

validity), such as Wilden et al.’s (2013) scale, or with scales measuring different constructs

(discriminant validity). Further potential outcomes of DC could be used for criterion-related

validation, such as organizational learning or strategic renewal. Overall, the ambition behind

our research is that in the future, there will be a valid, unified scale for measuring various,

clearly specified dimensions of DC. We are confident that this approach of concretizing

capacities and distinguishing different aspects may also contribute to future theory

development by further unraveling the multifaceted concept of DC.

 40

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Table 1: Existing scales for measuring Dynamic Capabilities (DC) as conceptualized by Teece

Findings from the literature review between January 1997- December 2015 (basis for scale development)

Author(s) (Year) Underlying model Operationalization of DC Predictive validity

1 Pavlou and El Sawy Teece, Pisano, and Sensing (4 items) Modification in operational
(2011) Shuen (1997) Learning (5 items) capabilities, New product
Integrating (5 items) development performance
Coordinating (5 items)
Reconfiguration (2 items; second-order
construct)
2 Protogerou, Caloghirou, Teece et al. (1997) Coordination (3 items) Firm performance
and Lioukas (2012) Learning (3 items)
Competitive responses (4 items)
3 Hawass (2010) Part of Teece’s Reconfiguration (4 items) n/a
(2007) model (Reconfiguration is criterion
variable)
4 Naldi, Wilkström, and Part of Teece’s Sensing (4 items) Innovative performance
Von Rimscha (2014) (2007) model Seizing (4 items)
5 Wilden and Gudergan Part of Teece’s Sensing (5 items) Firm performance
(2015) (2007) model Reconfiguring (7 items)
6 Nedzinskas, Pundzienė, Teece (2007) Sensing (2 items) Relative non-financial
Buožiūtė-Rafanavičienė, Seizing (7 items) performance
and Pilkienė (2013) Reconfiguring (2 items) Relative financial performance
7 Wilden, Gudergan, Teece (2007) Sensing (4 items) Financial solvency
Nielsen, and Lings Seizing (4 items)
(2013) Reconfiguring (4 items)
 47

Table 1 (continued): Existing scales for measuring Dynamic Capabilities (DC) as conceptualized by Teece

Findings from the literature review between January 2016-January 2018 (during scale development)

Author(s) (Year) Underlying model Operationalization of DC Predictive validity

8 Mandal (2017) Teece et al. (1997) Visibility f. Sensing (5 items) Hospital-supplier collaboration
Visibility f. Learning (5 items) Hospital supply chain
Visibility f. Coordinating (5 items) performance
Visibility f. Integrating (5 items)
9 Pandit, Joshi, Gupta, and Teece et al.’s (1997) Learning (2 items) Disruptive innovation
Sahay (2017) model; items partly Integrating (3 items)
based on Pavlou and Coordinating (1 item)
El Sawy (2011)
10 Rashidirad, Salimian, Teece et al. (1997) Sensing (6 items) Novelty
Soltani, and Fazeli Learning (7 items) Lock‐in
(2017) Integrating (7 items) Complementarities
Coordinating (7 items) Efficiency
11 Babelytė-Labanauskė Teece (2007) Sense (4 aspects to be rated) R&D performance
and Nedzinskas (2017) Seize (5 aspects to be rated) Innovation performance
Reconfigure (4 aspects to be rated)
12 Lopez-Cabrales, Bornay- Teece’s (2007) Sensing (3 items) n/a (DC are criterion variables)
Barrachina, and Diaz- model; items partly Seizing (4 items)
Fernandez (2017) based on Pavlou and Reconfiguration (5 items)
El Sawy (2011)
13 Shafia, Shavvalpour, Teece (2007) Sensing (3 items) Competitiveness of research and
Hosseini, and Hosseini Seizing (5 items) technology organizations
(2016) Reconfiguration (6 items)
Note. The scale purification study took place at the beginning of 2016 and only scales before 2016 could be taken into account for scale

development. The literature review was extended to January 2018 to make sure that more recent developments are also captured.
 48

Table 2: Pattern matrix of items for measuring sensing (SE), seizing (SZ), and transforming

(T) capacities (exploratory factor analysis)

Factor
Nr. Item SE SZ T
SE1 Our company knows the best practices in the market. 0.72
SE2 Our company is up-to-date on the current market situation. 0.82
SE3 Our company systematically searches for information on 0.95
the current market situation.
SE4 As a company, we know how to access new information. 0.83
SE5 Our company always has an eye on our competitors’ 0.70
activities.
SE6* Our company quickly notices changes in the market. 0.40 0.48
SZ1 Our company can quickly relate to new knowledge from 0.87
the outside.
SZ2 We recognize what new information can be utilized in our 0.71
company.
SZ3 Our company is capable of turning new technological 0.84
knowledge into process and product innovation.
SZ4 Current information leads to the development of new 0.73
products or services.
T1 By defining clear responsibilities, we successfully 0.89
implement plans for changes in our company.
T2 Even when unforeseen interruptions occur, change projects 0.90
are seen through consistently in our company.
T3 Decisions on planned changes are pursued consistently in 0.61
our company.
T4 In the past, we have demonstrated our strengths in 0.60
implementing changes.
T5 In our company, change projects can be put into practice 0.72
alongside the daily business.
T6* In our company, plans for change can be flexibly adapted 0.44 0.55
to the current situation.
Note: Extraction method: principal component analysis; rotation method: oblique rotation (promax) with Kaiser
normalization; the rotation converged in 6 iterations. Factor loadings <.30 are suppressed in the table.
* Item removed from survey after explorative factor analysis due to factor cross-loadings.
 49

Table 3: Descriptives, correlations and alpha coefficients for sensing (SE), seizing (SZ), and

transforming (T) subscales (n=269)

Correlation
Descriptives*
(alpha coefficient)

Number
Subscale Mean SD SE SZ T
of items

Sensing (SE) 4.76 0.885 5 (0.88)

Seizing (SZ) 4.30 0.928 4 0.58 (0.83)

Transforming (T) 4.16 0.886 5 0.49 0.66 (0.86)

Note: All correlations are significant at p < 0.01.

* Descriptives, correlations, and alpha coefficients are given for the purified scale after the exclusion of items due to
cross-loadings.
 50

Table 4: Descriptive statistics and correlations for DC, and business and innovation performance indicators (n=307)

Dynamic Capabilities
Descriptives Dimensions of business performance Dimensions of innovation performance
(DC)
employee- customer-
Variable Mean SD α SE SZ T market financial I1 I2 I3 I4 I5
related related
DC 0.91
Sensing (SE) 4.54 0.837 0.84 1
Seizing (SZ) 4.33 0.877 0.84 0.59** 1
Transform. (T) 4.31 0.876 0.87 0.50** 0.70** 1

Business
0.90
performance
market 4.16 0.814 0.86 0.43** 0.48** 0.48** 1
financial 3.89 1.053 0.91 0.36** 0.37** 0.33** 0.60** 1
employee-rel. 4.53 0.947 0.83 0.35** 0.48** 0.52** 0.62** 0.42** 1
customer-rel. 4.66 0.895 0.82 0.30** 0.37** 0.36** 0.82** 0.42** 0.64** 1
Innovation
0.80
performance
I1 2.60 1.994 0.07 0.27** 0.21** 0.17** 0.10 0.10 0.05 1
I2 2.17 1.935 0.06 0.25** 0.19** 0.18** 0.15** 0.13* 0.04 0.80** 1
I3 3.36 1.167 0.18** 0.36** 0.25** 0.26** 0.19** 0.15** 0.08 0.55** 0.45** 1
I4 2.25 1.627 0.16** 0.38** 0.30** 0.29** 0.19** 0.19** 0.15** 0.50** 0.45** 0.46** 1
I5 2.66 1.285 0.30** 0.35** 0.30** 0.37** 0.33** 0.19** 0.23** 0.24** 0.26** 0.33** 0.37** 1
*Correlation is significant at p < 0.05; **correlation is significant at p < 0.01.

I1=Percentage of sales 2013 from innovations introduced on the market within the past three years
I2=Percentage of profits 2013 from innovations introduced on the market within the past three years
I3=Number of innovations introduced on the market in 2013 within the past three years
I4=Innovation expenditure in R&D in percent of sales (2013)
I5=Percentage of costs saved (reduced) within one year by implementing process innovations in 2013
 51

Table 5: Regression analysis for business performance and innovation performance variables (n=307)

Dimensions of business performance Dimensions of innovation performance

Employee- Customer- aggregated

Predictors Market Financial I1 I2 I3 I4 I5
related related
(Constant) 1.88*** 1.58*** 1.73*** 2.75*** 1.98*** 2.00*** 1.60* 1.45** 0.60 0.14
0.01 0.04 -0.04 -0.06* -0.01 0.15* 0.11 0.07 0.09 0.14**
Firm size
(0.03) (0.04) (0.03) (0.03) (0.02) (0.07) (0.07) (0.04) (0.06) (0.04)
-0.06** -0.06* -0.01 -0.02 -0.04* -0.30*** -0.24*** -0.02 -0.21*** -0.12***
Firm age
(0.02) (0.03) (0.02) (0.03) (0.02) (0.06) (0.07) (0.03) (0.05) (0.04)
0.20** 0.26** 0.10 0.15* 0.18** -0.34* -0.33* -0.11 -0.21 0.14
Sensing (SE)
(0.06) (0.08) (0.07) (0.07) (0.06) (0.16) (0.16) (0.10) (0.13) (0.10)
0.17* 0.20* 0.21** 0.18* 0.19** 0.63*** 0.61*** 0.51*** 0.67*** 0.29*
Seizing (SZ)
(0.07) (0.10) (0.08) (0.08) (0.06) (0.18) (0.18) (0.11) (0.15) (0.12)
0.23*** 0.13 0.37*** 0.18* 0.23*** 0.15 0.11 -0.02 0.15 -0.14
Transforming (T)
(0.06) (0.10) (0.07) (0.08) (0.06) (0.17) (0.17) (0.10) (0.14) (0.11)
R 0.56 0.44 0.55 0.43 0.58 0.40 0.36 0.38 0.46 0.43
R-squared 0.31 0.19 0.31 0.18 0.34 0.16 0.13 0.14 0.21 0.19
Adjusted R-squared 0.30 0.17 0.29 0.17 0.33 0.15 0.12 0.13 0.20 0.17
Note: Unstandardized b coefficients are given, with standard errors in parentheses.
*p < .05; **p < .01; ***p < .001.

I1=Percentage of sales 2013 from innovations introduced on the market within the past three years,
I2=Percentage of profits 2013 from innovations introduced on the market within the past three years
I3=Number of innovations introduced on the market in 2013 within the past three years
I4=Innovation expenditure in R&D in percent of sales (2013)
I5=Percentage of costs saved (reduced) within one year by implementing process innovations in 2013
 52

SE1 R² = 0.63
0.75
SE2
0.83
SE3 0.71 Sensing (SE)
0.80
SE4 0.73
AVE = 0.59; CR = 0.88 0.79
SE5

SZ1 R² = 0.93
0.82
SZ2 0.80 Dynamic Capabilities (DC)
Seizing (SZ) 0.96
SZ3 0.78
0.66
SZ4 AVE = 0.59; CR = 0.85

T1 0.83
R² = 0.69
T2 0,82
0,75
T3 0,88 Transforming (T)
0,83
T4 0,69
T5 AVE = 0.63; CR = 0.89

Note: Model fit indices are NFI = 0.94, CFI = 0.97, IFI = 0.97, TLI = 0.96, and SRMR = 0.04

Figure 1: Second-order confirmatory factor analysis (CFA) with sensing (SE), seizing (SZ),

and transforming (T) as first-order constructs and dynamic capabilities (DC) as second-

order construct

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