Examining the dynamics between aligning a company's internal processes to the external ...

110 Pages·2016·2.11 MB·English

by  Hannes Dietz

Examining the dynamics between aligning a
company’s internal processes to the external
environment and the company’s performance with
a temporal dimension in the aircraft and
semiconductor industry

By
Hannes S. Dietz

in partial fulfilment of the requirements for the degree of
Master of Science in Management of Technology
at the Delft University of Technology,
to be defended publicly on Wednesday May 4, 2016 at 15:00 PM.

Graduation committee
Chairman:
Dr. Robert M. Verburg
Associate Professor, Faculty of Technology Policy & Management, TU Delft

First Supervisor
Dr. Zenlin Roosenboom-Kwee
Assistant Professor, Faculty of Technology Policy & Management, TU Delft

Second Supervisor:
Dr. Haiko van der Voort
Assistant Professor, Faculty of Technology Policy & Management, TU Delft

An electronic version of this thesis is available at http://repository.tudelft.nl/.
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Executive Summary
Since Bourgeois III and Eisenhardt (1988) have introduced their ground breaking study discussing the
concept of environmental velocity, which describes how fast and continuous/discontinuous the
organizational environment of a company changes in all the relevant dimensions which affect the
company i.e. the dimensions of technology, demand, regulation and competition, much research has
followed on this topic. However the research has come up short in several ways. First of it has assumed
the industry to have the same type of speed for every dimension and thus termed industries as high
or low velocity industries without taking into account that dimensions can differ in terms of their
speed which makes it unjustified to term an industry merely as a high or low velocity industry. An
example for this is the reference of the biotechnology industry as a high velocity industry even though
product development times are around 10-20 years in this industry. Secondly the research only takes
into account the speed of change, and mostly neglected the continuity of change measured though
the concept of direction of change. However the direction of change is an important concept which
can help characterize the environment and in turn enable researchers and managers alike to
understand the industry in which a company is operating in better. Furthermore most of the research
has been done on a conceptual level and neglected actual operationalisations and measurements of
the velocities of the industries. There are only few studies that have operationalized and measured
the environmental velocity, and those that have done so have neglected the direction of change.
Alignment literature has found that matching internal processes and capabilities to the external
environment has positive performance implications for the firm. Regarding a temporal dimension
previous studies have found that matching the internal rates of change to the external rates of change
is beneficial for the company and should be strived for (Kwee 2009, Ben-Menahem, Kwee et al. 2013).
We aim to bring together these two research streams and build upon the theory of environmental
velocity as well as the alignment literature.
One research objective is to advance research about environmental velocity by taking into account
the discontinuity through the concept of direction of change and operationalizing and measuring it in
a comprehensive way. Another one is to challenge the predominant view in existing literature that an
environment can be described with one single velocity which sums up all dimensions. This is done with
the help of velocity homology, a concept which assesses how dis(similar) the different dimensions of
the industry are to each other. Thus the fact that dimensions have different speeds and continuities
is taken into account which results in a multidimensional conceptualization of the environmental
velocity concept. In order to get a better understanding of the performance of companies in different
velocity conditions this concept will then be used to see how companies have managed to align their
internal actions to the environment. Furthermore an objective is to test the interrelationship of the
alignment of internal and external rates and directions of change and the performance of the
companies in the aircraft and the semiconductor industries, two industries which are both high
technology industries and have been previously described as low and high velocity industries
respectively.
In order fulfil the research objective several different steps were taken. First a thorough literature
review was conducted on the topic of environmental velocity with the aim of finding all possible
relevant dimensions which were deemed to be product, technology, demand, regulation and
competition. Subsequently the possible operationalisations and measurements for the speed and
continuity of the five dimensions was assessed and the difficulties that have limited previous research
highlighted. One of the main findings is that the continuity of an industry (direction of change) must
be assessed through qualitative analysis which limits the possibility of researching this concept due to
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the required time of assessing it. Furthermore literature review on alignment theory with a temporal
context revealed that alignment of internal processes and capabilities to the external environment
was found to be positively related to performance and that positive misalignment is superior to
negative misalignment which built the propositions for our analysis.
Followingly a short introduction and informative background about the two industries and the focal
companies, namely Intel and Boeing were given. Then each measure for the rate of change (speed
characteristic) and direction of change (continuity characteristic) for the three chosen dimensions,
namely product, technology and demand was discussed and analysed in detail. Whereas for both the
aircraft and semiconductor industry the rate of changes were measured through equal indicators,
namely change in number of new product generations (product), change in number of new patents
(technology), change in sales (demand), the direction of change was different and customized for each
industry except for the demand dimension (change in trend in sales). For the semiconductor industry
this was the minimum feature size (technology) the ratio of clock speed to price (product), whereas
for the aircraft industry it was the range, capacity and fuel efficiency per seat (product). For the
technology dimension a purely qualitative study was undertaken which indicated that no
discontinuous change had taken place over the last 25 years. As the operationalization of the direction
of change requires an in depth case study of the industries it becomes clear why there has almost
been no study measuring the concept of direction of change despite its relevance when analyzing an
industry in terms of its velocity.
On the basis of this analysis the velocity homologies of the industries were assessed. It was found that
there were considerable heterogeneity in between the dimensions for both industries. Nonetheless
we find that the semiconductor industry has rather high rates and directions of change in comparison
with the aircraft industry.
Finally the interrelation between aligning the internal rates and directions of change and the
performance of the firm are assessed. For the rate of change closer alignment is connected to higher
performance in the semiconductor industry. Furthermore positive misalignment is associated with
better performance than negative misalignment which is in line with our expectations. For the aircraft
industry at first no effect of alignment on performance could be detected. However after controlling
for the extreme high fluctuations in the product dimension results are in line with the propositions.
Even though further research is needed to confirm our findings we can say that in general our results
show that alignment is beneficial for the company.
We thus find that it is crucial for a manager to understand the environment the company is operating
in taking into account all the different dimensions and then try to align the company to the external
conditions. This however is connected to some challenges. If the velocities associated with the
different environmental dimensions are similar (high homology environment) all organizational
activities should be aligned to this uniform environmental velocity. This is rather straightforward and
simpler to manage. If, on the other hand, the velocity dimensions differ significantly (low-homology
environment), the firm will have to align its internal activities to these dissimilar rates and directions
of change, which will lead to heterogeneous sets of paces and directions of activities within the firm.
This situation can pose a real challenge since it will bring about potential incoherence among subunits.
A possible solution to this are modular and flexible structures which allow room for experimentation.
This can possibly help the company to be more open and flexible to change and operate at the
necessary speed at all levels.
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Further studies should take into account the other dimensions of the environmental velocity concept.
Furthermore more industries or the same industries with more data points should be studied and
other factors influencing the performance should be controlled for.
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Acknowledgements
I would like to thank all the members of my graduation committee for guiding me to through the
graduation process. Foremost, I would like to express my sincere gratitude to my first supervisor Dr.
Zenlin Roosenboom-Kwee for her continuous support, guidance and motivation. I really appreciate
her time and flexibility whenever I was stuck and appreciate the feedback and insightful comments
during our meetings which helped me regain my focus and overcome the challenges during this
research. I would also like to thank Dr. Haiko van der Voort and Dr. Robert Verburg for their
constructive and valuable feedback during our meetings. Your challenging remarks helped me
understand the shortcomings of my research and enabled me to improve my document. I also really
appreciate the freedom I was given in the research project by all of you.
I would like to thank all my friends for the support and encouragement during this period. Last but not
least I would like to thank my parents for everything they have done for me. You have always
supported and encouraged as long as I can remember and I am extremely grateful for that!
Hannes Dietz
Delft, April 2016

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Contents
Executive Summary .................................................................................................................................. i
Acknowledgements ................................................................................................................................ iv
Table of Figures ...................................................................................................................................... ix
Table of Tables ....................................................................................................................................... ix
1 Introduction ......................................................................................................................................... 1
1.1 Research Background .................................................................................................................... 1
1.2 Shortcomings of current research ................................................................................................ 2
1.3 Research Objective ....................................................................................................................... 3
1.4 Research Questions....................................................................................................................... 4
1.5 Research Approach ....................................................................................................................... 4
1.6 Relevance ...................................................................................................................................... 5
1.6.1 Scientific Relevance ............................................................................................................... 5
1.6.2 Managerial Relevance ............................................................................................................ 5
1.7 Outline of thesis ............................................................................................................................ 6
2 Literature Review ................................................................................................................................. 7
2.1 Environmental velocity ................................................................................................................. 7
2.2. Industry clockspeed ................................................................................................................... 12
2.3 Hypercompetition ....................................................................................................................... 13
2.4 Key summary of overlooked aspects of environmental velocity ................................................ 14
2.5 Velocity homology: Incorporating rates and directions of change ............................................. 15
2.6 Effect of environmental velocity on organization ....................................................................... 16
2.7 Alignment .................................................................................................................................... 20
2.7.1 Effects of alignment on performance with a temporal dimension ...................................... 21
2.7.2 Effect of alignment using the concept of rate of change ..................................................... 22
2.8 Summary ..................................................................................................................................... 23
3 Methodology ...................................................................................................................................... 25
3.1 Operationalisation of Five Dimensions of Environmental Velocity ............................................ 25
3.1.1 Technology ........................................................................................................................... 25
3.1.2 Product ................................................................................................................................. 28
3.1.3 Demand ................................................................................................................................ 29
3.1.4 Regulation ............................................................................................................................ 30
3.1.5 Competition ......................................................................................................................... 30
3.1.6 Summary .............................................................................................................................. 31
3.2 Measurement .............................................................................................................................. 32
3.2.1 Measuring rate of change .................................................................................................... 32
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3.2.2 Measuring direction of change ............................................................................................ 32
3.2.3 Measuring alignment for rate and direction of change ....................................................... 34
3.2.4 Performance Measurement ................................................................................................. 35
3.3 Short introduction of study sample ............................................................................................ 35
3.3.1 Industries ............................................................................................................................. 35
3.3.2 Companies............................................................................................................................ 35
4 Empirical Settings ............................................................................................................................... 36
4.1 Semiconductor ............................................................................................................................ 36
4.1.1 Semiconductor Industry ....................................................................................................... 36
4.1.2 Intel and competitors ........................................................................................................... 37
4.1.3 Rates and directions of change ............................................................................................ 39
4.2 Aircraft ........................................................................................................................................ 42
4.2.1 Aircraft Industry ................................................................................................................... 42
4.2.2 Boeing .................................................................................................................................. 44
4.2.3 Rates and directions of change ............................................................................................ 45
4.3 Summary ..................................................................................................................................... 50
5 Analysis and Discussion ...................................................................................................................... 53
5.1 Descriptive Statistics ................................................................................................................... 53
5.2 Homology comparisons of industries ......................................................................................... 54
5.3 Homology alignment ................................................................................................................... 55
5.4 Alignment of rates of change ...................................................................................................... 57
5.4.1 Semiconductor ..................................................................................................................... 58
5.4.2 Aircraft industry ................................................................................................................... 59
5.5 Direction of change ..................................................................................................................... 62
5.5.1 Semiconductor industry ....................................................................................................... 62
5.5.2 Aircraft industry ................................................................................................................... 64
5.6 Conclusion ................................................................................................................................... 64
6 Conclusion and recommendations .................................................................................................... 66
6.1 Conclusion ................................................................................................................................... 66
6.2 Contribution to Literature ........................................................................................................... 67
6.2.1 Theoretical contribution ...................................................................................................... 67
6.2.2 Managerial contribution and implication ............................................................................ 68
6.3 Reflection .................................................................................................................................... 69
6.3.1 Reflection about choice of companies ................................................................................. 69
6.3.2 Reflection about managerial view ....................................................................................... 70
6.4 Relation to Management of Technology Curriculum .................................................................. 71
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6.5 Limitations and future research .................................................................................................. 72
7 Bibliography ....................................................................................................................................... 73
8 Appendix ............................................................................................................................................ 80
8.1 Rate of change ............................................................................................................................ 80
8.1.1 Semiconductor ..................................................................................................................... 80
8.1.2 Aircraft ................................................................................................................................. 86
8.2 Direction of change ..................................................................................................................... 87
8.2.1 Technology Semiconductor ................................................................................................. 87
8.2.2 Product Semiconductor ....................................................................................................... 91
8.2.3 Demand Semiconductor ...................................................................................................... 92
8.2.4 Product Aircraft .................................................................................................................... 93
8.2.5 Demand Aircraft ................................................................................................................... 95
8.3 Tobin’s Q ..................................................................................................................................... 96
8.3.1 Intel ...................................................................................................................................... 96
8.3.2 The Boeing Company ........................................................................................................... 97
8.4 Aggregated alignment rate and directions of change with Tobin’s Q ........................................ 98
8.4.1 Semiconductor ..................................................................................................................... 98
8.4.2 Aircraft ................................................................................................................................. 99

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