Dynamic Capabilities and Pain Points in the Icelandic Energy ...

Lokaverkefni til MS–gráðu í stjórnun og stefnumótun

Dynamic Capabilities and Pain Points in the Icelandic Energy Sector

Oddur Sturluson

Febrúar 2016

Dynamic Capabilities and Pain Points

in the Icelandic Energy Sector

Oddur Sturluson

Lokaverkefni til MS-‐gráðu í stjórnun og stefnumótun

Leiðbeinandi: Gunnar Óskarsson

Viðskiptafræðideild

Félagsvísindasvið Háskóla Íslands

Febrúar, 2016

Dynamic Capabilities and Pain Points in the Icelandic Energy Sector.

Ritgerð þessi er 30 eininga lokaverkefni til MS prófs við

Viðskiptafræðideild, Félagsvísindasvið Háskóla Íslands.

© 2016 Oddur Sturluson

Ritgerðina má ekki afrita nema með leyfi höfundar.

Prentun: Háskólaprent

Reykjavík, 2016

Table of Contents

I. Introduction ......................................................................................................... 1 Need for the research .................................................................................................... 2 Research problem ......................................................................................................... 5 Nominal definitions ....................................................................................................... 7 Context ........................................................................................................................ 11 Environmental analysis ................................................................................................. 15

Porter’s five forces analysis ............................................................................................ 16 Consumer market analysis ............................................................................................. 21 PESTEL analysis ............................................................................................................... 22

Analysis of the Internal environment ............................................................................ 26 The value chain .............................................................................................................. 26 VRIO analysis .................................................................................................................. 31 SWOT matrix .................................................................................................................. 32

II. THEORY ............................................................................................................ 36 Theoretical foundations ............................................................................................... 36 Literature ..................................................................................................................... 41 Model ........................................................................................................................... 44

III. METHODS ........................................................................................................ 46 Design .......................................................................................................................... 48 Sample ......................................................................................................................... 49 Measurement ............................................................................................................... 53 Analysis ........................................................................................................................ 59 Validity ......................................................................................................................... 60 Assumptions ................................................................................................................. 61

IV: FINDINGS ......................................................................................................... 63 Brief overview .............................................................................................................. 63 Results ......................................................................................................................... 63 Descriptive analysis ...................................................................................................... 77 Validity/reliabilit .......................................................................................................... 78

V. DISCUSSION ...................................................................................................... 81

VI. CONCLUSION ................................................................................................... 84 Summary ...................................................................................................................... 84 Conclusions .................................................................................................................. 86 Implications .................................................................................................................. 86

Table of figures:

PICTURE 1: BARNEY'S CONCEPTUAL MODEL (PICTURE FROM NEWBERT, 2007) ILLUSTRATES THE DIFFERENCE BETWEEN RESOURCES THAT RESULT IN COMPETITIVE ADVANTAGE AND SUSTAINED COMPETITIVE ADVANTAGE. ........................................................................................ 8

PICTURE 2: ANALOGY BETWEEN BEHAVIORAL AND GRAMMATICAL ENTITIES (GERSICK, C. J. G. & J. R. HACKMAN, 1990). THE ANALOGY BETWEEN BEHAVIORAL AND GRAMMATICAL ENTITIES SERVES AS AN EXAMPLE OF HOW ROUTINES FUNCTION .......................................................................... 10

PICTURE 3: PORTER'S FIVE FORCES ........................................................................................................ 17 PICTURE 4: PESTEL ANALYSIS (MCGEE ET AL., 2010) .............................................................................. 23 PICTURE 5: AN EXAMPLE OF CULTURAL INSENSITIVITY. ........................................................................ 25 PICTURE 6: PORTER'S VALUE CHAIN (MCGEE ET AL., 2010). .................................................................. 27 PICTURE 7: SUPPLY CHAIN (FELLER ET AL., 2006). .................................................................................. 30 PICTURE 8: VRIO ANALYSIS (BARNEY & HESTERLY, 2011) ...................................................................... 32 PICTURE 9: SWOT MATRIX (GRIFFIN, 2008) ........................................................................................... 34

QUESTION 1: .......................................................................................................................................... 65 QUESTION 2: .......................................................................................................................................... 66 QUESTION 3: .......................................................................................................................................... 66 QUESTION 4: .......................................................................................................................................... 67 QUESTION 5: .......................................................................................................................................... 67 QUESTION 6: .......................................................................................................................................... 68 QUESTION 7: .......................................................................................................................................... 68 QUESTION 8: .......................................................................................................................................... 69 QUESTION 9: .......................................................................................................................................... 70 QUESTION 10: ........................................................................................................................................ 70 QUESTION 11: ........................................................................................................................................ 71 QUESTION 12: ........................................................................................................................................ 71 QUESTION 13: ........................................................................................................................................ 72 QUESTION 14: ........................................................................................................................................ 72 QUESTION 15: ........................................................................................................................................ 73 QUESTION 16: ........................................................................................................................................ 73 QUESTION 17: ........................................................................................................................................ 74 QUESTION 18: ........................................................................................................................................ 74 QUESTION 19: ........................................................................................................................................ 75 QUESTION 20: ........................................................................................................................................ 75 QUESTION 21: ........................................................................................................................................ 76 QUESTION 22: ........................................................................................................................................ 76 QUESTION 23: ........................................................................................................................................ 77 QUESTION 24: ........................................................................................................................................ 77 QUESTION 25: ........................................................................................................................................ 78 QUESTION 26: ........................................................................................................................................ 78

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I. Introduction

“Success breeds complacency. Complacency breeds failure. Only the paranoid

survive.” – Andy Grove (Isaacson, W. (2014). The Innovators. Pg. 196, Simon &

Schuster: New York.)

The core topic of strategic management as a field of study is how firms achieve and

maintain competitive advantage. The concept of dynamic capabilities, which draws

from the resource-‐based view, organizational learning, contingency theory and

evolutionary economics for its theoretical foundation, is one of the most influential

paradigms in this field. Capabilities can influence a firm’s performance on many

levels and can be used to change short-‐term competitive positions into long-‐term

competitive advantages. Dynamic capabilities offer managers a way to change their

firm’s competencies, knowledge systems and culture to adapt to a dynamic

environment, ensuring organizational survival.

In this thesis the theoretical and practical benefits of dynamic capabilities will

be explored in relation to the Icelandic energy sector. In the first chapter, we explain

the goals and value of my study, as well as providing background information about

the Icelandic energy sector and performing basic internal and external strategic

analyses such as VRIO and PESTEL. In the second chapter, we review the theoretical

foundations of dynamic capability research and the process model to be used in this

study. It begins with a literature review of dynamic capabilities that touches on

several theoretical streams: Contingency theory, innovation management and

theory of the firm, to name a few. The scope of the study and theory behind the

process model are also discussed in this section.

The research methods, design and data analysis are examined in the third

chapter. The goal of this research is to clarify the Icelandic energy sector’s pain

points from the dynamic capabilities view (DCV) by conducting a questionnaire

based survey study on the experiences and opinions of individuals currently

employed in the Icelandic energy sector. An analysis of the results will be used to

suggest further avenues of research based on survey data collected from a sample of

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Icelandic firms functioning in the energy sector. Managers and other staff working

for energy production firms, or engineering, consulting or service firms that operate

in the energy sector were invited to take part in the study via e-‐mail.

The fourth chapter discusses the research findings, perform a statistical

analysis, provide suggestions for validity tests and improvements for future use. The

next chapter turns to a discussion of the implications of the research and analysis. In

this section the analysis will be more descriptive than statistical. Finally, we review

the conclusions and limitations of the paper with suggestions for future research.

Need for the research

The field of strategic management is relatively young, having been known as

business policy until 1979 (Nag, Hambrick, & Chen, 2007), when Schendel and Hofer

(1979) renamed it with a new emphasis on the concept of strategy. Since then

scholars have analysed, debated and proposed numerous avenues of research within

the field of strategic management. Nevertheless the field’s scope of study is still

widely considered ambiguous (Nag et al., 2007).

In their search for a broadly accepted definition of strategic management

Nag, Hambrick and Chen considered explicit definitions given by several influential

scholars over the years (Nag et al., 2007). One of the most recent, and applicable to

recent academic trends in the field is the definition given by Bowman, Singh &

Thomas (2002) in the Handbook of Strategy and Management: “The strategic

management field can be conceptualized as one centred on problems relating to the

creation and sustainability of competitive advantage, or the pursuit of rents” (Pg.

45). While this is definition is certainly appropriate it is broad and reflects the open-‐

ended nature of strategic management as a field of study. Nag et al. (2007) also

drew attention to the importance of resources and assessments of inner and outer

environments, as did Thomas, Hunger and Rangarajan (2008).

The field’s ambiguity does not diminish its scientific value. The renowned

philosopher of science, Thomas Kuhn said that scientific communities don’t need

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unifying paradigms to justify or confirm their existence (1962). What they truly need

is a shared identity. Owing to its theoretical underpinnings in economics and the

social/behavioural sciences, strategic management research can encompass a large

array of different perspectives, one of which is dynamic capabilities. Dynamic

capabilities are not a fully developed scientific theory per se (Helfat & Peteraf, 2009).

The term has been in use for less than 30 years, and it has only been roughly 20

years since Teece and Pisano (1994) seminally used the concept “dynamic

capabilities” as we know it today in their work. It is therefore neither surprising nor

discouraging that a theory of something as complex as dynamic capabilities should

still be fairly conceptual and formative. Vigorous empirical analysis of subjects

relevant to this phenomenon is a key factor towards the development of a viable

theory.

Countless scholars have studied innovation but two of the most influential in

modern academia are Oskar R. Lange (1943) and Joseph Schumpeter (1912, 1942).

Schumpeter, famous for his “gales of creative destruction” and his later view that

capitalism would lead to monopolies and the suffocation of innovation and

entrepreneurialism defined innovation as “the setting up of a new product function”

(p. 87). Lange’s definition was a change in product functions “which make it possible

for the firm to increase the discounted value of the maximum effective profit

obtainable under given market conditions”. Put simply this means that innovation is

a value-‐creating manifestation of an idea or invention. It should be emphasized that

it is not enough to simply create something. For this manifestation to truly be

considered innovative, its production has to be cost efficient. It could achieve that

goal by lowering production costs or creating new value chains for example.

Innovation can be either evolutionary (continuous) or revolutionary

(disruptive). The former is an innovation that incrementally improves an existent

technology or capacity whereas the latter is completely new and can often render

existent technology obsolete (Yu & Hang, 2009). Innovation usually involves risk,

especially in dynamic markets where innovation is constant and disruptive, such as

the software or digital media industries. Innovative firms are trailblazers and it’s

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usually impossible to know with certainty whether the trail will lead to hidden

treasures or off a proverbial cliff. In spite of such uncertainty, studies show that

there is a positive correlation between a firm’s capacity for innovation and its

performance (Hitt, Ricart i Costa and Nixon, 1998; Raffa & Zollo, 1998; Ireland and

Hitt, 1999). Such a capacity facilitates growth and profits and makes a firm more

adaptive to external changes.

With improvements in communications and technology, the speed of market

change has accelerated. With a firm, factual understanding of the relationship

between dynamic capabilities and innovation, managers have a foundation for

adapting to internal and external changes. The most concrete method for gathering

hard facts about the possibilities and limits of capabilities is quantitative research.

That’s why research such as this is relevant to both academics in management fields

as well as firm managers.

To evaluate the effect of dynamic capabilities on innovation it is vital to

consider what positive or negative effects such capabilities might have. The use of

dynamic capabilities can cause an increase in production and revenues or a decrease

in costs, benefitting firm performance (Teece, Pisano & Shuen, 1997; Teece, 2007;

Drnevich & Kriauciunas, 2010). However, capabilities also require cultivation and

management. Resources spent on the fostering of dynamic capabilities are resources

that could otherwise be spent on ordinary or managerial capabilities (Helfat et al,

2007; O’Reilly & Tushman, 2008; Drnevich & Kriauciunas, 2010).

While there is significant data to indicate that dynamic capabilities positively

influence firm performance (Yeoh and Roth, 1999; Baum, Locke and Smith, 2001;

Lee, Lee and Pennings, 2001; Danneels, 2002; Makkonen, Pohjola, Olkkonen and

Koponen, 2013; Wilden, 2013; Yung-‐Chul, 2013; Wang, Senaratne and Rafiq, 2015),

there is also a considerable amount of data that supports the ecological position that

most firms are in fact inert and unable to adapt. Change occurs instead through an

“evolutionary process of variation-‐selection-‐retention” (O’Reilly & Tushman, 2008, p.

186). If the assumption that most companies are incapable of adaptation were true

it would mean that strategic management was redundant and that owners and

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managers should focus on extracting residual value before allowing their firms to

fail. Clearly this serves as an important caveat to the desirability of pursuing dynamic

capabilities. Should management waste precious resources, causing negative

externalities and increasing industry costs simply to struggle against the inevitable?

While some scholars such as Dew, Goldfarb and Sarasvathy (2006) consider

strategic management “futile in the face of environmental disruptions” there is a

wealth of studies that conclude that dynamic capabilities are important factors in

enhancing profitability and competitive advantage (Yeoh and Roth, 1999; Baum,

Locke and Smith, 2001; Lee, Lee and Pennings, 2001; Danneels, 2002; Makkonen,

Pohjola, Olkkonen and Koponen, 2013; Wilder, 2013; Yung-‐Chul, 2013; Wang,

Senaratne and Rafiq, 2015). It would seem that while organizations do generally

become more inert and less adaptable as they grow older others are able to adapt.

Dynamic capabilities are in fact at the root of what differentiates those firms that

can overcome their inertia and escape path dependencies from those that are

doomed to fail. Since it is management’s function to keep firms alive and preferably

profitable it would be counterintuitive to encourage managers to “cannibalize” a

firms resources. Strategic management must offer ways to ensure continued

survival. The underlying position that management should strive for competitive

advantage, against all odds undoubtedly influences the tone and assumptions of this

type of research.

Research problem

Before making specific decisions about what form would be optimal for a

quantitative study of dynamic capabilities and innovation it’s necessary to properly

define and isolate these concepts to avoid tautology. Dynamic capabilities are the

processes by which firm managers ‘integrate, build, and reconfigure internal and

external competencies to address rapidly changing environments’ (Teece et al.,

1997: 516). It should be clear that capabilities are related to, but separate from

resources and core competencies.

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It is also necessary to take market dynamism into account. Dynamic

capabilities have different attributes in moderately dynamic or high-‐velocity

markets. In moderately dynamic markets, they resemble traditional organizational

routines. This means that they are stable, predictable processes that emphasize

analysis and variation. In high-‐velocity markets however, they are experiential,

unstable, adaptive but unpredictable and the evolutionary emphasis is on selection.

This difference not only alters the way dynamic capabilities are formed but how they

should be used to achieve competitive advantage

As stated earlier the focus of this thesis is not primarily the relationship

between dynamic capabilities and firm performance. The focus of this study is on

how dynamic capabilities relate to the paint points of a dynamic and innovative

market e.g. the Icelandic energy sector. Whether dynamic capabilities improve

energy firm performance is beyond the scope of this particular thesis. Studies on the

relationship between innovation and firm performance will be briefly discussed in

chapter II. The main focus of this thesis however, will remain on the research

question:

What sort of dynamic capabilities are common in Icelandic energy firms

and what can they tell us about industry pain points?

Research in the field of dynamic capabilities often incorporates themes of

innovation and entrepreneurship. Clearly innovation is highly valuable, not only in

gaining competitive advantage in existing markets, but in creating entirely new

markets. This is important since dynamic capabilities do not only enable firms to

react to market changes, but to cause market changes as well. Managers seeking to

increase in-‐firm innovation need to know how dynamic capabilities interact with

innovation and which capabilities result in the greatest innovative capacity.

To be clear, this study’s separation of a firm’s innovation from its

performance is not pleonastic. While innovation plays an important role in

dynamic capabilities, which in turn can serve as a catalyst for competitive

advantage, innovation is not always necessary or beneficial for a firm’s

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performance. Ambidexterity, the capacity to simultaneously exploit existing

assets and explore new possibilities is key in achieving and sustaining

competitive advantage. If exploration comes at the cost of exploitation it can

spell financial ruin, as has been the case with many research-‐intensive tech

companies, who have been unable to recap the high cost of R&D. Achieving a

balance between these two factors means tying together two radically

different organizational alignments. On the one hand successful exploitation

necessitates a quick and efficient strategy based on incremental and

continuous innovation. On the other hand a successful strategy for exploration

would have to be flexible and potentially disruptive (O’Reilly & Tushman,

2008). If a firm attempts to excel at both without the right balance it runs the

risk of being good at neither.

Nominal definitions

Before delving into the theoretical foundations of this research, certain key concepts

and terms should be defined or clarified. The first and perhaps most important

concept to be familiar with is capabilities. Capabilities are the organizational skills,

competences and processes necessary to successfully utilize a firm’s strategic

resources. Capabilities are to organizations what skills are to individual employees:

the aptitudes needed to accomplish tasks and improve their strategic position. The

main focus of this thesis is dynamic capabilities, a firm’s ability to respond to and

create environmental change (Teece, 2007), and how such capabilities affect

innovation.

To keep the framework within which dynamic capabilities are researched

from being vague or tautological it is important to make a clear distinction between

dynamic capabilities, resources and routines (Eisenhardt & Martin, 2000). Dynamic

capabilities as defined by Teece, Pisano and Shuen (1997: 516) are “the firms ability

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

rapidly changing environments”. Teece later described dynamic capabilities as “…the

particular (nonimitability) capacity business enterprises possess to shape, reshape,

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configure and reconfigure assets so as to respond to changing technologies and

markets and escape the zero-‐profit condition” (Teece, 2009: 87). While seemingly

insignificant, Teece’s emphasis on escaping the zero-‐profit condition in his later

definition not only reflects a more established theoretical foundation for the

importance of dynamic capabilities in establishing and maintaining competitive

advantage, but also a subtle reference to the problem of success traps.

Resources are firm-‐specific, inimitable assets such as trade secrets or tacit

knowledge (Teece et al., 1997; Armstrong & Shimizu, 2007). The value of specific

resources depends on the context in which they are used, due to differing effects on

firm efficiency and effectiveness (Barney, 1991). If a resource is valuable, rare and

difficult to imitate it can help a firm achieve sustained competitive advantage.

Usually the inimitability of such resources results from a firm’s unique history, the

social complexity of the resources or ambiguity as to how the resource results in

competitive advantage (Dierickx & Cool, 1989; Lippman & Rumelt, 1982).

Picture 1: Barney's conceptual model (picture from Newbert, 2007) illustrates the difference between resources that result in competitive advantage and sustained competitive advantage.

Routines are activities undertaken by individuals or groups in a relatively

automatic fashion to employ firm-‐specific assets (Gant, 1996; Teece et al., 1997).

While routines may appear simple or random they allow complex interactions

between individuals and firms to take place in the absence of formal rules or

directives (Pentland & Rueter, 1994; Gant, 1996). Such routines have pros and cons.

Without routines, organized social systems as well as most social interactions would

be impossible (Gersick & Hackman, 1990). As demonstrated in Ellen Langer’s (1989)

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influential work on mindful and mindless cognitive processing however, some

routines are dysfunctional and survive purely out of habit rather than gain. Some

behavioural routines can be so socially engrained that they persist despite being

unpopular amongst those they affect (Gersick & Hackman, 1990).

Put simply, a firm’s resources (often referred to as firm-‐specific assets) are

valuable assets that the firm owns or has access to. Capabilities on the other hand

are activities the firm can use to gain and protect its resources. For example, if an

engineering firm were studied, engineering experience would qualify as a firm

specific asset. An example of a routine would be new employee orientation and a

dynamic capability would be the firm’s ability to hire new engineers or fire

redundant staff to adapt to current market trends.

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For an empirical study of dynamic capabilities to be valid the relevant

capabilities must be clearly defined as a set of specific processes. Most identifiable

dynamic capabilities can be found in one of the following four categories (Eisenhardt

& Martin, 2000):

• Resource integration: e.g. product development routines.

• Resource reconfiguration: routines for copying, transferring and recombining

resources, tacit knowledge in particular.

• Resource gain: knowledge-‐creation, alliance and acquisition routines

designed to bring new resources into the firm.

• Resource release: jettison routines to remove redundant resources.

It is important to keep in mind that dynamic capabilities are an extension and

improvement of the resource-‐based view. The RBV has been criticised for being

unspecific and glossing over the reconfiguration and building of resources in dynamic

Picture 2: Analogy between Behavioral and Grammatical Entities (Gersick, C. J. G. & J. R. Hackman, 1990). The analogy between behavioral and grammatical entities serves as an example of how routines function.

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markets. After all many resources, especially knowledge-‐based and tacit resources

are inimitable and take a long time to develop (Eisenhardt & Martin, 2000). To

accurately explain why certain firms are better at adapting to sudden and substantial

changes in the market it is important to take instability into account (Priem and

Butler, 2000).

Context

The simple definition of dynamic capabilities belies how complex the concept can

become in realistic market situations. After all, to quantitatively measure

competitive advantage and firm performance over time might require different

criteria depending on the relevant industry’s characteristics. Market dynamism plays

an integral role when it comes to correctly analysing capabilities and routines after

all (Eisenhardt and Martin, 2000). In stable and moderately dynamic markets

capabilities are similar to routines but in highly dynamic markets the difference

between them is more pronounced. It could be argued that the need for quantitative

research is greater in highly dynamic sectors, to make up for a lack of experience in

that sector. More stable sectors are often older, less uncertain and more established

so that participants and investors have had time to gain experiential and tacit

knowledge about how the sector functions.

Major environmental shifts are becoming increasingly common in todays

market (Wiggins and Ruefli, 2005). To successfully manage a firm in this

hypercompetitive market, managers must be able to achieve competitive advantage

by adapting to external changes. In highly dynamic markets, where innovation is

frequent and often unpredictable, the current resources held by a firm might not be

enough to maintain its competitive advantage. A firm’s ability to adapt to and exploit

innovations and market changes are a better indicator of whether or not a firm will

thrive in such a market. Dynamic capabilities also give managers a more pliant

managerial measurement than traditional tools such as VRIO or the value chain. As

Warren (2002) pointed out in his book Competitive Strategy Dynamics, the static

nature of such measurement tools can cause reinforcing feedback, where the in-‐ or

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outflow of resources drives a further in-‐ or outflow of that same resource. For

example, actions to save costs might not have an immediate effect on the firm’s

ability to function but might curtail investment and resource building, eventually

leading to collapse. Sustained competitive advantage, which is the primary goal of

strategic management might require expenditure in the short term but can save a

firm from the zero-‐profit trap of highly competitive industries in the long term.

Iceland is a sparsely populated island with approximately 320,000

inhabitants, roughly 200,000 of which live in the greater Reykjavík area. The island

itself is about 103,000 square kilometers. 10% of the country is covered in glaciers

and much of the interior is mountains and highlands, devoid of settlements and

people (Askja Energy Partners (a), 2015). Iceland is also located on top of the Mid-‐

Atlantic Ridge between the North American and Eurasian tectonic plates, resulting in

some volcanic and seismic activity. Life expectancy is high, infant mortality is low and

the country is considered one of the most developed and wealthy nations in the

world. Iceland has a free market economy and is a member of the European Free

Trade Association (EFTA) and the European Economic Area (EEA). Although the

country formally applied for EU membership in 2009, political opposition has at least

temporarily suspended the application (Ministry for Foreign Affairs, 2015).

Renewable energy constitutes almost all of Icelandic energy production, with

71% of generated electricity coming from hydropower and 29% from geothermal

energy sources. A small amount of electricity is generated by wind power and fossil

fuels but it is so small that many sources simply omit to mention it (National Energy

Authority, 2015). Hydropower and geothermal energy also account for about 85% of

Icelandic energy consumption (Statistics Iceland, 2015). Electricity prices in Iceland

are also substantially lower than in most other OECD countries. Iceland is the world’s

largest electricity generator per capita at approximately 55,000 kWh annually (17

TWh total) with considerable potential for increased production, not only in hydro-‐

and geothermal power but also in wind and maritime power (Askja Energy Partners

(b), 2015). The majority of Icelandic energy is sold to energy intensive industries such

as the aluminum industry. This creates a steady flow of foreign currency into the

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Icelandic economy, which has proved especially valuable in the wake of currency

depreciation caused by the collapse of the banking system in 2008. Icelandic energy

exports may increase in the near future if plans to build a submarine electrical cable

between Iceland and the United Kingdom pan out. Iceland imports almost all fuels

used for transport and shipping. The recently initiated search for hydrocarbons on

the Icelandic continental shelf could change that as well as the larger formation of

Icelandic energy production, if it proves successful.

The state has a considerable presence in the Icelandic energy sector. The

largest energy company is the state-‐owned Landsvirkjun, which produces about 75%

of all Icelandic electricity and manages more than 96% of the country’s hydropower

production. Lansdvirkjun also owns a 65% share in the Icelandic Transmission System

Operator (Landsnet). Landsvirkjun does not sell directly to households, selling

primarily to industry or public utilities (Askja Energy Partners (c), 2015).

Orkuveita Reykjavíkur (OR) is another of Iceland’s main energy firms and

services the greater Reykjavík area. A 93.5% share is owned by the city of Reykjavík

with the rest split amongst a few adjacent municipalities. It not only produces energy

but is also the largest local provider of electricity and heating to end-‐users. It also

distributes hot and cold water as well as operating a sewage system for Reykjavík

and several adjacent municipalities. Many of the countries energy consumers

purchase their electricity and heating from OR due to the large proportion of the

Icelandic population living in the capital. Their largest single customer is the Norðurál

aluminum smelter (Askja Energy Partners (c), 2015).

The third of the three largest energy-‐producing companies is HS Orka.

Formerly a state-‐owned company, HS Orka’s majority shareholder is the Canadian

energy company Alterra Power. In addition to these three firms there are a number

of smaller energy producers, almost all owned by the Icelandic state and/or Icelandic

municipalities. These include HS Veitur, Norðurorka, Orka Náttúrunnar, Orkubú

Vestfjarda, Orkuveita Húsavíkur, Metanorka and Rarik. There are also numerous

engineering, service and consulting firms that work with the energy-‐producing firms

and constitute part of the Icelandic energy sector as a whole (Askja Energy Partners

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(c), 2015).

With rising global energy consumption and increased public interest in

renewable energy, the Icelandic energy sector has numerous potential avenues for

growth. To increase exports would necessitate an increase in national energy

production as well as investment in more sophisticated transmission and distribution

systems, for example submarine cables to countries such as Greenland, Canada or

the UK. Increased exports also depend on competitiveness on an international scale.

A firm with suboptimal management may thrive within the constraints of the tariffs

and miscellaneous protections granted to nationalized industries but to compete

internationally it must have a competitive advantage.

The international renewable energy market is a dynamic field with high

learning rates, rapid cost decreases and the constant specter of political

intervention. To achieve sustained competitive advantage in a dynamic market such

as this, firms must have dynamic capabilities that exceed those of their competitors.

It is with this in mind that the decision was made to complete a study of dynamic

capabilities and innovation in the Icelandic energy sector. In the next chapter we will

review the relevant literature on dynamic capabilities, the resource based view and

other schools of thought that influence and guide the methodology of this research.

To properly analyse Icelandic energy firms we reach for the usual Strategic

Management approach of splitting our analysis into two parts: organizational and

environment (also referred to as inner and outer context) (Rasche, 2007). This

approach allows us to separate circumstantial issues from organizational or practical

issues. A certain strategy might work well in one environment but not in another and

vice-‐versa after all, and to allow managers to securely make strategic decisions it is

necessary for them to know both what characterizes their environment and what

strategies are (or aren’t) likely to succeed in such an environment. This is one of the

most fundamental tenants of the pursuit of competitive advantage, which is the

main goal of strategic planning (McGee et al., 2010).

15

Basing decisions on observations of past events serves to create a cultural

“common sense” awareness of what common pitfalls and hazards to avoid but is a

flawed method. Perspectives on the past are often biased, inaccurate or incomplete.

It is this uncertainty that results in the difference between intended and realized

strategy (McGee et al., 2010). Intended strategy fits the traditional concept of

strategy as a plan or prediction. Such strategies represent management’s

assumptions about the future and their goals, based on their current and past

resource base as well as analyses of environmental factors. Such strategies often

don’t go according to plan or change as time progresses. There are many possible

explanations for why such plans go astray and being able to deviate from a strategy

to accommodate unforeseen opportunities or threats, both in the inner and outer

context, should not be seen as a bad thing.

Until now we have only discussed the DCV and RBV which both focus on the

organization itself, unlike the market-‐based view (Klug, 2006) in which the outer

environment is the point of focus. In the next section, we will examine the outer

environment with a special emphasis on dynamism in the energy sector.

Environmental analysis

Before performing an environmental analysis we must begin by defining the relevant

environment. There are numerous criteria for what could be considered the relevant

environment. The environmental factors are any external factors that influence

management decisions. Factors such as these can include government, consumers,

competition, suppliers, lobbyists as well as scientific and technological advances.

Managers need to be acutely aware of external factors and the effect they might

have on their firms to respond appropriately to competitive forces and achieve

competitive advantage. In this chapter we discuss the external environment, using

strategic methods and tools.

Industry analysis

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An industry analysis is an assessment of a certain industry or market, used by firms

to map threats and opportunities stemming from the development of the industry.

Profit margins vary between industries due to differences in their structures (Porter

(a), 1998). A firm’s performance will therefore be significantly influenced by its

position in an industry and how that industry is structured. Is the industry

monopolistic or in perfect competition? Where does the firm fit in? Can the firm

specialize in such a way as to have an advantage in certain sectors of the industry?

Can the firm compete in terms of price or quality? To answer these questions and

more, we’ll use Porter’s (1998) five forces analysis.

Porter’s five forces analysis

Porter’s five forces analysis is one of Michael Porter’s strategic frameworks, which

include the value chain and generic strategies. This framework gauges industry

attractiveness by determining competitive intensity based on five forces. These

forces are: the threat of new entrants, threat of substitutes, the bargaining power of

buyers, bargaining power of suppliers and rivalry among existing firms (Porter,

2008). If these forces drive industry profitability down, the industry is considered

unattractive. An example of an unattractive industry would be one with perfect

competition and normal profits. Attractiveness does not necessarily translate to

equal profits between firms however; firms in attractive or unattractive industries

can achieve higher than average returns by using their core competencies to achieve

competitive advantage (McGee et al., 2010). This sort of analysis can help managers

plan for short-‐term profit opportunities.

17

New entrants often bring a new approach, new ideas and innovation, disrupting the

status quo and forcing incumbent firms to reorganize their business models and

strategies (Porter (b), 1998). There are certain barriers that keep new entrants at bay

however. These entry barriers fall into seven categories (Porter, 2008):

1. Supply-‐side economies of scale: firms that produce in large volumes achieve

greater economies due to decreasing marginal costs of production. Fixed

costs are spread over a larger number of units and larger firms often have

more negotiating power. Supply-‐side economies of scale mean that potential

entrants either have to take a substantial risk by entering the industry on a

Rivalry among existing

competitors

Threat of new

entrants

Threat of substitutes

Bargaining power of buyers

Bargaining power of suppliers

Threat of new entry: • Time and cost of

entry • Specialist

knowledge • Economies of

scale • Cost advantages • Technology

Competitive rivalry: • Number of

competitors • Quality

differences • Other

differences • Switching costs • Customer

Buyer power: • Number of

Customers • Size of each

order • Differences

between competitors

• Price sensitivity • Ability to

Supplier power: • Number of

suppliers • Size of suppliers • Uniqueness of

service • Your ability to

substitute • Cost of changing

Picture 3: Porter's Five Forces (Porter (a), 1998)

18

large scale or compete with incumbent firms on worse terms (Porter, 2008).

This barrier is highly relevant in Iceland, where new and smaller energy firms

have to compete with large state run firms with deep pockets.

2. Demand-‐side benefits of scale: Also known as network effects, benefits of

scale affect customer’s willingness to trade with a firm based on how large

the firm is. Larger and better-‐known firms are either considered more

reliable when it comes to supplying crucial products or customers see value

in belonging to a large network of consumers. The best way for a new entrant

to overcome this barrier is to differentiate itself from incumbent firms and

specialize to address different customer concerns than their competitors.

3. Customer switching costs: Once a buyer has become accustomed to

purchasing from a certain supplier, switching has explicit and hidden costs.

Staff must be retrained, new data gathered and new systems put in place. If

the cost of switching to a new supplier outweighs the benefits new entrants

will find it difficult to gain clients.

4. Capital requirements: this barrier is one of the most straightforward. Entry

into an industry requires capital investment. Although the amount of

investement may differ between industries, there is always a need for

facilities, inventories, marketing and other such things. The lower the need

for financial resources, the less of a barrier this is. Also worth keeping in mind

is that if expected returns are high, capital requirements present less of a

problem because investors will be more willing to finance the firm.

5. Incumbency advantages independent of size: incumbents may have certain

advantages that new entrants can’t easily replicate, even with a large amount

of financial resources. These advantages can include accumulated

experience, brand recognition, professional networks, proprietary technology

and a host of other advantages not available to new entrants (Porter (b),

1998).

6. Unequal access to distribution channels: New entrants are usually at a

disadvantage when it comes to distributing their goods and services.

Incumbents have easier access to distributors, retailers and wholesalers for a

number of reasons; established networks and reputation and exclusive

19

partnerships among others. If access to distribution is enough of a barrier, it

might prove easiest for new firms to create entirely new distribution

channels

7. Restrictive government policy: governmental policy decisions regarding

important subjects such as foreign investment can directly influence the

attractiveness of an industry. Governments can impose licensing

requirements or restrictions, which hinder new entrants but they can also

make entry easier by lowering tariffs or fees (Clegg, Carter, Kornberger og

Schweitzer, 2011). Governments also indirectly support entry by funding

research centers and subsidizing education for example, lowering the cost of

entry for new firms.

Although all seven barriers are relevant in the context of the Icelandic energy sector,

the first and seventh are especially noteworthy. Not only do large, pre-‐existing firms

dominate the market, but the government also keeps the industry under its thumb.

The Icelandic public is highly critical of big industry, especially foreign owned firms

seeking to make headway in the Icelandic market.

The power of suppliers

Suppliers, when in a strong position, can lower over-‐all industry profitability by

charging higher prices, lowering quality and service standards or shifting costs to

industry participants (Porter, 2008). Firms can become over-‐reliant on suppliers with

whom they’ve done business and formed a relationship due to switching costs.

There are several reasons suppliers can become more powerful compared to their

buyers. If suppliers offer an unsubstitutable product, if they offer differentiated

products, if they do not receive a large portion of their revenues from the industry in

question and so forth.

The power of buyers

In a nutshell, the power of buyers is the opposite of the power of suppliers. Buyers

can lower industry profitability by demanding lower prices, higher quality and

20

service standards and manipulating industry participants into competition. If the

demand for goods is elastic the buyers are in a stronger position and can make more

demands towards the industry participants. If there are few buyers, low switching

costs or the goods are easily substituted, buyers can threaten to look elsewhere.

The threat of substitutes

Substitutes are products that perform the same or a similar function as a different

product and can replace that product. Substitutes can pose a risk to industry

participants if they can achieve similar quality at a lower price. A well-‐executed

substitute should be able to affect the profitability of its competitor product. If the

competitor is unable to convince buyers that their product is superior or worth the

higher price, its profitability will decrease. Substitutes are not always directly related

to their competitor products and changes in different industries might unexpectedly

create substitutes, such as with plastic materials that became good enough to

substitute steel in automobile manufacturing. There is no real substitute for

electricity of course and while one could argue that different forms of production

represent a substitute, such as choosing to use solar generated electricity rather

than geothermally generated electricity for example, the low price for electricity in

Iceland means that there is less need for alternative modes of production.

Rivalry among existing competitors

Highly competitive rivalry, especially price competition, can decrease industry

attractiveness by transferring profits from the industry to buyers and in some cases

by skewing economic signals. Rivalry can take on many forms, for example

advertising campaigns, product introductions and price discounting. If sufficiently

rigorous, competition of this nature can raise costs. Porter (a) (1998) said that it was

the intensity and the basis on which industry participants compete that dictates the

degree to which rivalry will affect profitability. Rivalry is intense if there are many

participants and they are homogenous in terms of size and power, if the industry is

growing slowly or exit barriers are high. Exit barriers are the opposite of entry

barriers and exist when for practical, legal or emotional reasons management feels

21

obliged to remain in a particular business even though profitability may be low (or

even negative) (Porter (b), 1998).

The basis of competition, whether companies compete in terms of price,

service, convenience, advertising or something else and whether companies

compete on the same basis also affects profitability. As mentioned earlier, price

competition is especially detrimental to profits, as it spurs retaliation and trains

customers to ignore other features and focus solely on price (Porter, 2008). Rivalry

between firms serving different customer segments, with different needs and wants,

can prove much more profitable and beneficial for the growth of the industry as a

whole.

Consumer market analysis

Consumer analysis can be used in a number of ways to help firms develop marketing

strategies. Understanding what consumers think and how they feel, whether on an

individual or group level can help management identify their target market and set

marketing objectives. Consumer research should be continuous so as to allow the

firm to adapt and improve its strategy. Target marketing is one form of consumer

analysis. It has three major steps: segmentation, targeting and positioning.

First bases for segmenting the market are identified and profiled. When

segmenting a market there are numerous factors that determine how segments are

chosen. Segments are based on the needs and desires of potential buyers, their

geographical locations, their purchase history and their fiscal status amongst other

things (Weinstein, 2004). Secondly the attractiveness of those segments is measured

through research methods such as focus groups and appropriate segments chosen.

Finally, a marketing mix is developed to appeal to that market segment and the firm

positions itself to implement their marketing campaign. Knowing the relevant

segment is important to be able to effectively market to consumer tastes (Kotler,

Armstrong, Wong og Saunders, 2008). Geographic location has historically been the

most important factor in deciding market segments for Icelandic energy firms with

the exception of the Orka Náttúrunnar (ON Power) which markets itself as a

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environmentally conscious energy firm, offering fast-‐charging stations for electric

cars and experimenting with CO2 and H2S emission reduction.

Targeted marketing helps managers decide whom they should be marketing

to by measuring the potential for profit in different segments. Is the segment

growing, stagnant or shrinking? Is there untapped potential in this segment? Does

our firm conform to the demands of this segment? There are many questions

managers need to consider before embarking on an expensive marketing campaign.

Once a sufficiently attractive segment has been chosen a firm has to dedicate itself

to a marketing strategy aimed at that segment. Succesful strategies often have three

common features: the point of parity, the point of difference and image (Kotler et

al., 2008).

The point of parity refers to features that the product has in common with

competitor products whereas points of difference are the opposite. While managers

often emphasise advertising the point of difference, the point of parity offers buyers

some context. Say for example that Coca-‐Cola wanted to convince Pepsi drinkers to

start drinking their titular soft drink instead. Obviously offering Pepsi drinkers

something completely different might not resonate with them. After all, they like

Pepsi. In such a situation it would be more effective to market Coca-‐Cola as being

“like” Pepsi only better somehow. The third feature, image, plays an important role

in this stage of the marketing campaign. Using a marketing mix of advertising,

packaging, presentation, price, service and location firms can selectively aim for their

intended segment. That is precisely what ON Power has done in recent years, most

likely in a bid to appeal to the urban sensibilities of Reykjavík inhabitants, which is

their main service area.

PESTEL analysis

The PESTEL analysis is a tool used to analyze the macro environment for marketing

and strategic planning. Its name, PESTEL, is an acronym for the six categories the

analysis is based on: Political, Economic, Social, Technological, Environmental and

23

Legal factors (Witcher and Chau, 2010). These six categories are examined to create

a holistic view of external factors influencing the industry’s future.

Political factors

Politics and government policy play an important part in the viability of business

ventures and have become increasingly important to businesses with the rise of

globalization. Firms need to be aware of the threats and opportunities in the political

environment before entering a new market and even when deciding whether to stay

in an established one. Political decisions such as tax policies, trade regulations, trade

agreements and political stability have a significant impact on the economy (Clegg et

al., 2011).

Legal

Political

Economic

Social

Technology

Environment

Picture 4: PESTEL analysis (McGee et al., 2010)

24

Economic factors

Economic factors refer to macroeconomic factors such as currency valuation,

interest rates, inflation and growth. Macroeconomics and politics are highly

connected factors due to the influence political leaders can have on central banks,

public image and other things which influence currency value, the state of education

and the workforce and expectations for the future (Hitt, Ireland and Hoskisson,

2009). What economic factors are considered desirable depend largely on the needs

of the firm seeking entry. High wages may make for a more expensive workforce but

they also mean that the populace has more money to spend on goods and services.

Social factors

Not to be overlooked, social conventions and structures must be handled tactfully to

avoid public-‐relations disasters. Different beliefs, cultures, languages and histories

create a metaphorical minefield of potential problems. Social development and

status also affects the types of products needed (Hitt et al, 2009). If you were to

compare an urban environment with a rural one for example, you might find very

different consumption habits due to what sort of consumption is considered socially

acceptable. Ethnocentricity can have substantial consequences for firms, as was the

case when Kenneth Cole disastrously tweeted an off-‐colour joke in 2011 about

unrest in Cairo. A joke that might be considered amusingly risqué in a comfortable

American office environment was offensive and insensitive to millions directly

affected by the unrest spreading across the Middle East.

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Picture 5: An example of cultural insensitivity.

Technological factors

Technological innovation can (and frequently does) cause rapid change in markets by

reducing costs, increasing efficiency and ease distribution (Clegg et al, 2011). There’s

a wealth of recent examples of technological innovation disrupting preexisting

markets: the internet, e-‐mail, the smart phone are all very recent but have

completely changed the business world. New technology can do more than disrupt

markets however; it can also keep an existing product or service from becoming

obsolete

Environmental factors

Environmental factors are increasingly important due to public concern over climate

change and environmental protection. Governments are under pressure to address

pollution with new laws, regulations and fees. This change in public opinion might

also entail a change in consumption habits; sustainability and waste reduction don’t

exactly go hand in hand with unbridled consumerism.

Legal factors

26

Like economic factors, legal factors are also closely tied to political factors, due to

government’s role in making laws but are more specifically about existing

regulations such as employment or health and safety regulations. Being aware of

legal factors is essential to avoiding unnecessary legal costs and complications, which

can impede firm performance (Clegg et al, 2011). It is quite common for countries to

have laws regarding foreign ownership of real estate or foreign-‐based businesses for

example, which might affect the feasibility of the firms business plan.

Analysis of the Internal environment

Analysis of the internal environment is mainly about examining the resources and

capabilities a firm has or can easily access. This includes knowing the firms resources,

how they can be employed and how they can help the firm achieve competitive

advantage. Knowing a firms strengths and weaknesses are vital to be able to decide

which external factors are necessary for success. In this chapter we discuss some

analytical tools that managers can use to analyze their inner environment as well as

their core competencies, corporate values and goals.

The value chain

The value chain is an analytical tool used to determine and clarify how a business

unit produces value and where its profits come from. It is a financially oriented

method where the firm’s activities are put forward as a chain. In it, the unit’s

activities are put into two categories: primary and support activities. The primary

activities are inbound logistics, operations, outbound logistics, marketing and sales

and service. The support activities are procurement, human resource management,

technological development and infrastructure (Johnson et al., 2011). The value chain

not only gives managers a clear idea of where to look to lower costs and increase

value-‐formation but what it is that their customers value most in their product

(McGee et al., 2010).

27

Put simply, a firm’s value is determined by the customers demand for its products or

services (Feller, Shunk and Callarman 2006). “Don’t find customers for you products,

find products for your customers” as Seth Godin said. Firms can’t push their products

on customers but have to use a pull approach instead, seeking to fulfill customers’

needs as they experience them.

Primary activities:

• Inbound logistics refers to the management, movement and storage of

inbound resources, materials, products and other inventory from suppliers.

• Operations are concerned with turning inputs such as raw materials and

labour into outputs such as goods and services.

• Outbound logistics are related to the storage and movement of final products

to end-‐users.

• Marketing and sales are an especially important group of activities when it

comes to increasing revenue since this part of the value-‐chain represents

customers’ main source of information from the firm.

• Service refers to all service required to meet the customers’ standards after

they have bought the product. Service can directly affect the value of the

product and the firm’s image.

Support activities:

Firm infrastructure

Human resource management

Technology development

Procurement

Inbound logistics Operations Marketing

& sales

Outbound logistics

Customer service

Picture 6: Porter's Value Chain (McGee et al., 2010)

28

• Firm infrastructure refers to clerical tasks necessary for production such as

accounting, legal, quality assurance and strategic management.

• Human resource management includes all activities pertaining to staff:

recruitment, training, dismissal, compensation et cetera.

• Technological development refers to the technology, equipment, hardware,

software and technical knowledge used in transforming inputs into outputs.

• Procurement is all acquisition of goods and services from external sources.

All these activities are interconnected and offer managers opportunities to

reduce costs and increase revenue. Each block of the chain can have three

subactivities that affect value formation: direct activities, indirect activities and

quality assurance. Direct subactivities create value by themselves. Sales and

marketing are examples of direct activities. Indirect activities create value by

making direct activities run smoothly, like management and record-‐keeping.

Quality assurance ensures that the activities meet the standards and demands

required. If we think of marketing as a direct activity, proofreading

advertisements would be an example of quality assurance (McGee et al., 2010).

The value chain offers some insight into the very reason the firm exists, what

need they are fulfilling. There are certain risks to overemphasizing the value

chain however. Focusing too much on cost minimization might not only make

future investments and growth impossible but might even make it impossible to

maintain current quality standards and services.

The value chain doesn’t take people, products, capacity or customers into

account and can distort the goal of running a business by causing inappropriate

attention to eliminating costs. There are after all, some costs that cannot be

avoided if one wants to successfully run a company; staff salaries, maintenance,

marketing and product development, amonst many other examples.

The value chain analysis for assessing competitive advantage

When performing a value chain analysis with the goal of assessing competitive

advantage there are a few things that must be kept in mind (McGee et al, 2010).

29

• Each element in the value chain must be defined within context of

competitive advantage.

• The cost and importance of activities haave to be evaluated in each element

to calculate the total cost.

• The cost of elements should be compared and the most expensive ones

identified. It can be useful to compare the costs to those of competitors.

• Costly activities should be identified. Minimizing cost there will prove most

beneficial to the firm.

• The relationship between elements and activities should be clarified and

known to management.

• Management has to be on the lookout for opportunities to decrease cost,

especially in high cost activities.

When the flow of goods and service is managed within value chain, we refer to it as

supply chain management.

Supply chain management

Supply chain management is the management and arrangement of upstream and

downstream product flows between suppliers, the firm and buyers. It is a cross-‐

functional approach that includes the movement of input (raw material, labour, et

cetera) and output resources (finished goods) from start to finish. With increased

globalization and the advent of hypercompetitive markets these functions have

more commonly been outsourced to specialized firms that can more efficiently and

effectively complete the task. Supply chain management was developed as a way to

Transportation Procurement Central

manufacturing Distribution, assembly & repair

Sales, marketing & customer service

Customers

Suppliers

Demand signal

Product flow

Picture 7: Supply chain (Feller et al., 2006)

30

improve trust and cooperation between an increasing number of supply chain

partners

In a way, the supply chain represents the flip-‐side of the value chain in that

the former is more similar to a push system where products are manufactured based

on sales predictions and then pushed onto the buyer via marketing (Kotler et al.,

2008). Supply chains are diverse and give a good indication of what unique features

a firm has and what its core competencies are.

Core competencies

Core competencies are a firm’s main strategic strengths, based on their skills and

resources. They should be both difficult to replicate and support expansion into new

markets. It should also be of significant value to end customers (Prahalad and Hamel,

1990). Core competencies lie at the foundation of competitive advantage because

they are essentialy what differentiate firms from their competitors.

Core values

Core values are the fundamental beliefs and moral tenets of an individual or

organization, although the term is usually used in strategic management to refer to

organizational values. There are countless examples of values and which values

matter most depends largely on the industry, culture and individuals involved.

Examples of values are reliability, honesty, innovation, sustainability and so forth.

Values usually reflect the organizations social and legal environment but are not the

same thing as cultural norms. It’s advisable for firms to choose and stick to their core

values to set an example for employees and reassure clients.

Choosing values requires some honest introspection. For an organization to

be able to dedicate itself to its values, they must be realistic. It is also important not

to choose too many values so as to spread themselves too thin. They must genuinely

represent the organization and be immune to shocks and stand up to criticism.

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VRIO analysis

The VRIO framework is another form of internal analysis based on four factors:

value, rarity, imitability and organization. Tangible and intangible resources and skills

are examined with the goal of finding new avenues for reaching competitive

advantage. Tangible resources are physical things like tools and machinery while

intangible resources are things that have no physical presence but can still be owned

by the company such as brand reputation and property rights (Barney and Hesterly,

2011). The four factors mentioned above can be thought of as questions whose

answers make it easier for organizations realize potential opportunities to compete

more effectively.

• Value: “Is the firm able to exploit an opportunity or neutralize an external

threat with the resource/capability?” Value is created by the resources the

firm has that increase the customer’s utility (Barney, 1991). Low value is a

bad sign for firms, making it difficult to make plans and investments for

growth. Companies without valuable resources are ill equipped to compete

(Barney og Hesterly, 2011).

• Rarity: “Is control of the resource/capability in the hands of a relative few?”

Rarity refers to resources that can only be acquired by one or few firms. If a

resource is not rare, it leads to competitive parity. It is therefore important

that firms are aware of how rare these resources are and whether or not they

can be used as a point of difference (Teece, Pisano and Shuen, 1997).

• Imitability: “Is it difficult to imitate, and will there be significant cost

disadvantage to a firm trying to obtain, develop, or duplicate the

resource/capability?” Imitability is necessary to turn temporary competitive

advantage into sustained competitive advantage. Even if a firm has a rare

resource it must be inimitable or else competitors will quickly imitate or

substitute for that resource.

• Organization: “Is the firm organized, ready, and able to exploit the

resource/capability? Is the firm organized to capture value?” The answer to

this question hinges on the previous answers. Organization includes

32

compensation, formal and informal management and strategy (Teece et al.,

1997).

The picture below illustrates how the VRIO analysis can be visually put forward.

Picture 8: VRIO analysis (Barney & Hesterly, 2011)

SWOT matrix

The SWOT matrix is a useful tool for evaluating the strengths, weaknesses,

opportunities and threats involved in a business venture. It is often used when

introducing a new product or strategy. The matrix takes both internal and external

factors into account and organizes them based on whether or not they are beneficial

to the success of the venture (Griffin, 2008). The degree to which the internal

environment matches the external is referred to as strategic fit. Internal factors are

No

No

No

No

Competitive disadvantage

Competitive parity

Temporary competitive advantage

Temporary competitive advantage

Valuable?

Rare?

Costly to imitate?

Organized to capture value?

Sustained competitive advantage

33

the strengths and weaknesses of the venture and can include the qualities of the

product itself, the location, marketing, personnel and so on. The external

environment offers opportunities and threats in the form of macroeconomic and

technological changes, cultural factors, competition and legislation. It is important

to note that with different goals and contexts the same factors can be either

beneficial or detrimental to the success of a product or strategy (Humphrey, 2005).

Strengths

A business venture’s strengths are internal factors that have a positive effect on the

success and profitability of said venture. Furthermore, strengths should increase

competitive advantage. Firm strengths can be either tangible or intangible resources

such as equipment, clientele, distribution networks, patents, management, IT and so

forth. Identifying strengths depends on manager’s insight and judgement as to which

factors are beneficial, which are not and what strengths they can attempt to gain.

Weaknesses

Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

Internal factors

External factors

SO Strategies -‐ Use strengths to take advantage of opportunities.

WO Strategies -‐ Beat weaknesses to take advantage of opportunities

ST Strategies -‐ Use strengths to avoid threats.

WT Strategies -‐ Minimize weaknesses and avoid threats.

Picture 9: SWOT matrix (Griffin, 2008)

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Just as important as being aware of a firm’s strengths is identifying and addressing

it’s weaknesses. Examples of weaknesses could be a bad location, poor promotional

work or inexperience in a certain field. There are countless potential weaknesses and

managers should not shy away from being honest about what could potentially be a

weakness. It is important to be able to judge whether a venture has any chance of

success before resources are poured into attempting it.

Opportunities

Opportunities are external factors that have a beneficial effect on the profitability of

the firm or venture. These opportunities include not only macroeconomic factors

such as altered consumer tastes or greater cash flow but also small scale

opportunities presented by suppliers and competitors such as if a competitor were

to be involved in a scandal.

Threats

Threats are negative external factors such as a supplier raising prices or a competitor

lowering prices. Although the SWOT matrix is often used to predict strengths,

weaknesses, opportunities and threats to new ventures or firms, established

products and firms are also susceptible to unforeseen threats such as tax hikes or

distribution issues.

Strategic planning

When an organization has enough information and data regarding all relevant

internal and external factors it can begin the process of defining its strategy and

allocating resources to implement this strategy. Strategic planning is similar but

separate from strategic thinking. The former is more systemic and formalized

whereas the latter is more creative and flexible. Strategies can be formed on either

the business-‐level or the corporate-‐level. Business strategies regard the way a

company creates, maintains and uses its competitive advantage, while corporate

strategy regards how to diversify and merge with other businesses. Corporate

strategy is therefore only relevant to larger corporations since small businesses only

35

have one strategic decision make on the corporate-‐level: which industry to enter

(McGee o.fl., 2010).

A successful strategy requires efficiency, realism and clarity. Wishful thinking can be

fatal for managers and staff hoping to make the most of the firm’s resources. But it is

also imperative that the firm’s goals and organization are clear to managers and staff

alike. No wind is favourable if you don’t know where you’re sailing.

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II. THEORY

Theoretical foundations

At its core, the DCV is closely related to innovation and entrepreneurship. Stevenson

and Amabile defined entrepreneurship as “the pursuit of opportunity beyond the

resources you currently control” (1999). Based on this definition, entrepreneurship is

not only for enterprising individuals with nothing but an idea and bootstraps by

which to pull themselves up, but also for organizations and firms seeking to survive

intense competition. Corporate innovation is often written off as an oxymoronic

buzzword, seen by critics as trying to have the best of both worlds: the steadiness

and stability of a large corporation combined with the creativity and exponential

growth of startups. But while the management of established corporations and

startups will never be exactly the same and there might be some truth to the claim

that those who espouse corporate innovation are simply trying to have their cake

and eat it too, there is plenty of proof that corporations can innovate. Just not the

same way startups do.

That’s because not every innovation has to be a revolutionary new

technology or groundbreaking discovery. In a manner of speaking, innovation

doesn’t even have to be new. That is to say, the technology behind it doesn’t have to

be new. As Rogers and Shoemaker (1972) put it:

It matters little, as far as human behaviour is concerned whether or not

an idea is “objectively” new as measured by the lapse of time since its

first use or discovery… if the idea seems new and different to the

individual, it is an innovation.

We can take some of the most emblematic examples of innovation and

entrepreneurship in the past decade as examples. The technology underlying

Facebook, Twitter and Uber was not new – but the way this technology was

combined and consumed was. This is referred to as cultural entrepreneurship. This

type of innovation can be small, incremental and more realistically attainable for

37

larger (and hence slower) corporations. But for that to happen, the firm must

purposefully pursue a course of innovation management.

In a way, innovation management mirrors Coase’s (1937) theory that

transaction costs are the cause of firm-‐formation. Good innovation management

lowers the cost of using or retaining specific resources, for example inventions and

innovations that bring factors of production together by lessening spatial

distribution such as e-‐mail or social network sites. While initially positive the

advantage of such innovation can later be diminished by what Kogut and Zander

referred to as “the paradox that creativity works by rules of exclusions” (1996: p.

515). Put simply, path-‐dependence can lead to sub-‐optimal circumstances where

firms are bound by existing thought processes. Due to this a firm can follow “best

procedure” and still be unprofitable.

Again, one of the key foundations of successful strategy is a clear goal. Basing

innovation management on the DCV requires that we determine what purpose

dynamic capabilities have – why are they important and what do we stand to gain by

investigating them? Our conclusion will likely depend on the definition we’ve chosen

to lean on. Are dynamic capabilities meant to make firms more adaptable to rapidly

changing environments (Teece, 1997) or to instigate changes in the market

(Eisenhardt and Martin, 2000)?

It has been mentioned before that the DCV is an extension of the RBV and

that they share many of their theoretical underpinnings. It would be a mistake

however to ignore the differences between the two. While the RBV assumes

Ricardian rents, the DCV assumes Schumpeterian rents. Ricardian rents occur when

similar goods or resources are of different quality and yield. Schumpeterian rents

occur in the time between an innovation is introduced and it becomes widely

disseminated. As an illustrative example, consider two energy firms that both

produce electricity from geothermal sources. Let’s assume that the quality of their

services and products are identical. If one of the companies is situated in a highly

active geothermal area and the other is not, that company can produce at a lower

cost, and create more rent. That’s an example of Ricardian rent. But lets say that one

38

of the firms invents a new method of extracting geothermal energy which greatly

decreases the cost of production and gives the inventing firm a competitive

advantage until eventually, the other company manages to catch on to what the

inventor firm is doing and does the same. Schumpeterian rent is the surplus profit

the inventor firm achieves during their temporary competitive advantage.

While the Ricardian position views rents as market inefficiencies that remain

despite equilibrium, the Schumpeterian perspective places a greater emphasis on

the role of the entrepreneur and temporary imbalances created by innovation.

Schumpeter’s routinely cited idea of “creative destruction” captures the essence of

his theories quite aptly. Economies gravitate towards stagnant equilibrium and it is

the role of the entrepreneur to instigate change and make old modes of production

obsolete.

Whereas the RBV is primarily concerned with a firm’s resources, the DCV

pays more attention to the processes and path-‐dependencies that cause the

formation of a firm’s resource base. The former is focused on resource

substitutability while the latter is focused on inimitability. Helfat et al. (2007) refer to

these differences by the biology-‐based terms technical versus evolutionary fitness.

These terms are quite suitable in describing the difference between the two

perspectives albeit in a slightly heavy-‐handed way. Proponents of the DCV criticized

the static nature of the RBV and just as it is not necessarily the strongest, fastest or

most intelligent species that passes on it’s genetic material, the largest, richest and

most famous companies do not always survive. What truly sets survivors apart then,

is adaptability.

Simply drifting with the current, without any course or strategy is also a

recipe for disaster. A firm does not become innovative by chasing every

technological or management trend that comes along, nor is it likely to achieve

structural success. How can managers decide what risks to take and what to avoid? If

there were any simple answer to that question, it would result in an entirely

different economy than the one we know. What we know is vital however is being

capable of organizational learning and avoiding common observational biases that

39

impede innovation, such as the certainty effect (Kahneman and Lovallo, 1993) which

causes risk aversion.

Being prepared for every eventuality is neither possible nor practical for most

firms, so what is the optimal way for management to organize their firms? According

to the contingency theory there is no best way to organize a corporation, lead a

company or make decisions. Instead, the optimal course of action is contingent upon

the internal and external situation. While this might sound like management is just

supposed to “wing it” what it really means is that relation and task-‐oriented

behaviour has to be taken into account and a fit between that behaviour and the

resources and power structure of the organization has to be found at the beginning.

This brings us back to the RBV.

To understand the philosophical and practical assumptions which form the

foundation of the resource-‐based view, contingency theory and innovation

management the theory of the firm should be considered (Knight, 1921; Coase,

1937; Cyert and March, 1963; Williamson, 1975; Nelson and Winter, 1982; Grant,

1996). The term theory of the firm may be a bit misleading, seeing as how there is no

single, universally accepted theory, but rather several non-‐exclusive theories about

what purpose firms serve. Knight’s theory was that firms existed as a sort of risk

preference conduit, allocating risk in such a way as to meet different individual

needs (1921). That way, risk-‐seeking entrepreneurs could employ the skills of risk-‐

averse professionals.

Later management scholars considered Knight’s theory insufficient and

expanded on it (Grant, 1996). Coase (1937) and Williamson (1975) emphasised the

relative efficiency of contract-‐based, hierarchical organizations. Others sought to

further integrate economics and organizational studies into the theory of the firm

(Cyert and March, 1963; Nelson and Winter, 1982), resulting in the behavioural and

evolutionary theories of the firm. While the resource-‐based view of the firm is “less a

theory of firm structure and behaviour as an attempt to explain and predict why

some firms are able to establish positions of sustainable competitive advantage”

(Grant, 1996: p. 110), all of these approaches have influenced it.

40

While the DCV has become the most prominent branch of RBV research,

there are two other categories commonly used (Armstrong & Shimizu, 2007): The

Schumpeterian view and the hypercompetition view that sustained competitive

advantage is actually a series of competitive advantages over time. There are also

three major paradigms in addition to dynamic capabilities (Teece, Pisano and Shuen,

1997). On the one hand there are two that emphasize exploitation of market power:

the competitive forces approach (Porter, 1980) and the strategic-‐conflict approach

(Shapiro, 1989). On the other hand there are those that emphasize efficiency: the

resource-‐based perspective (Penrose, 1959; Rumelt, 1984) and the DCV. These

research categories and paradigms will not be discussed in much detail in this thesis

to avoid confusing the issue, but there is a wealth of interesting literature on the

subject.

Dutta, Narasimhan and Rajiv (2005) put forth an interesting view of

capabilities as “the efficiency with which a firm uses the inputs available to it (i.e., its

resources, such as R&D expenditure), and converts them into whatever output(s) it

desires (i.e., its objectives, such as developing innovative technologies)”. This view

encapsulates the connection between the DCV, innovation management and

contingency theory. In nutshell, the three are connected because they all deal with

the unquantifiable factors that decide competitive advantage. Efficiency is a poorly

quantifiable concept, much like capabilities. It is specifically because they are

difficult to measure and observe that they are inimitable and provide competitive

advantage (Schumpeter, 1942; Penrose, 1959; Nelson & Winter, 1982; Prahalad &

Hamel, 1990).

Because of this difficulty and despite growing interest, dynamic capabilities

are underrepresented in quantitative research (Newbert, 2007). If capabilities and

core competences are more significant in explaining competitive advantage than

resources it might seem strange that they have received comparably little empirical

attention. This is likely in part due to the difficulty of measuring capabilities and

competitive advantage. A firm’s dynamic capabilities are largely moulded by its

history and path dependency. Despite knowledge management’s attempts to codify

41

tacit knowledge most learning is still local (Teece, Pisano and Shuen, 1997). A “one

size fits all” approach to organizational routines and competences is misguided in

diverse and dynamic environments where technology and circumstances are

constantly changing.

Literature

As mentioned in the introduction, the dynamic capabilities view has garnered

substantial interest since it appeared in Teece, Pisano and Shuen’s (1997) influential

“Dynamic Capabilities and Strategic Management”. That interest has spread beyond

the field of strategic management and into other management fields such as

entrepreneurship and business administration (Barreto, 2010). The fast growth of

research, reviews and literature on the subject has presented us with a wide range

of perspectives, interpretations and criticisms. Several distinct definitions have been

put forward, and while this thesis follows Teece’s (2009) definition of dynamic

capabilities as inimitable capacities to shape, reshape, configure and reconfigure

assets so as to respond to changing technologies and markets, a closer look at other

definitions can provide deeper understanding of the direction in which researchers

have taken dynamic capability research.

Teece and Pisano (1994) initially introduced the concept in 1994 in an article

in Industrial and Corporate Change but it was not until 1997 when Teece et al. (1997)

published their famous article in Strategic Management Journal that the dynamic

capabilities view of strategic management was developed as we recognise it today.

Their vision of the DCV was an extension of the RBV, designed to rectify its static

view of competitive advantage. DCs were not a resource but rather, an ability to

utilise internal and external competences to achieve sustained competitive

advantage in rapidly changing environments. These abilities were usually tacit and

could not easily be bought or traded and were assumed to be path-‐dependent and

heterogeneous across firms. As well as the RBV, Teece et al. (1997) were heavily

influenced by entrepreneurial and evolutionary economics (Schumpeter, 1934;

Schumpeter, 1947; Nelson & Winter, 1982), as can be seen in their emphasis on

42

evolutionary paths, organizational learning and reconfiguration. Following the

publication of their influential article, more researchers dedicated their attention to

the DCV as a key element of study. Numerous articles were published in prestigious

academic journals such as Strategic Management Journal, Academy of Management

Journal, Journal of Management and more, spanning not only strategic

management, but several other business administration fields as well (Barreto,

2010).

The definitions given for DCs and the DCV in the following years varied

slightly, with some emphasizing the RBV and others leaning more heavily on

evolutionary economics. An example of this difference is that while Teece et al.

(1997) described DCs as abilities or capacities, some others emphasised their

repeatability, viewing them as more similar to routines or processes (Eisenhardt &

Martin, 2000; Zollo & Winter, 2002; Helfat et al., 2007). The former view echoes the

RBV concept of competencies (Stalk et al., 1992) and the latter is based on

organizational learning which is a view often employed in evolutionary economics

(Nelson & Winter, 1982). Other than that the most important points for debate are

how DCs are affected by environmental dynamism, how they should be

characterised and what results they can be expected to have on firm performance.

While Teece et al. (1997) clearly emphasise the importance of external

changes, there has been some disagreement as to how relevant environmental

dynamism is to the DCV. Some, such as Zollo and Winter (2002) consider

environmental dynamism to be almost irrelevant. This might sound somewhat

confusing at first with regards to the DCV’s criticism of RBV as static but they

consider the dynamism of the capabilities themselves as paramount to the theory,

differentiating dynamic from ordinary capabilities (Winter, 2003) or substantive

capabilities (Zahra et al., 2006). Other types of capabilities have been suggested such

as the capability to develop opportunities and avoid threats (Teece, 2007) but since

these capabilities are typically considered dynamic capabilities, they will not be

specifically taken into account here.

43

What lessons are there to be gleaned from the path dependencies of

successfully adaptive firms? This is where evolutionary economics and

environmental dynamism come back into play. Repetition, reflection and articulation

are the learning mechanisms, which equip firms with the necessary experience to

thrive (Eisenhardt and Martin, 2000; Zollo and Winter, 2002; Zahra et al., 2006).

Learning mechanisms such as these can be either tacit or explicit. Tacit would be

through discussions and peer-‐to-‐peer observation whereas explicit learning would

be through codified knowledge such as manuals or routine specifications. In a

moderately dynamic environment variation is the key to survival whereas selection

more relevant in high-‐velocity environments (Eisenhardt and Martin, 2000).

Likewise, learning from experience is more important to older firms than startups.

Another thing that makes dynamic capabilities harder to measure is the lack

of heterogeneity between firms (Eisenhardt and Martin, 2000) and the lack of a clear

relationship between DCs and performance. Most influential writers on the subject

of dynamic capabilities seem to assume a positive relationship between DCs and firm

performance (Zollo and Winter, 2002, Teece, 2007). There are those however who

approach the question of DCs positive outcome with more caution. Eisenhardt and

Martin (2000) consider DCs to be contributive, but not directly responsible for

improved firm performance. Not only is it problematic to ascertain what positive

affect dynamic capabilities might have but what affect they might have in general.

Two firms with identical capabilities might end up with completely different resource

bases depending on their circumstances after all. There is also the question of the

trade-‐off – by cultivating and employing dynamic capabilities managers neglect

other possibilities (Winter, 2003).

Unsurprisingly the large body of work dedicated to the DCV and the

popularity of the concept has received a good deal of criticism. This criticism is worth

examining. Some argue that the concept is tautological or poorly defined

(Williamson, 1999) whereas others argue that the theory is not universally applicable

(Winter, 2003; Newbert, 2007). Much of the criticism seems to stem from a lack of

clarity regarding the conceptualization, procedures and scope that have hitherto

44

been used to research the DCV. Helfat and Peteraf (2009) deftly answered criticisms

that dynamic capabilities lack a clear scientific theory. DCV is a young and evolving

theoretical standpoint. For it to evolve into a viable scientific theory, great care must

be taken to properly define concepts properly.

Model

When deciding what process to use in the execution of this research a plethora of

options was available. Originally the plan was to delve into Schumpeterian theory,

researching Kondratiev waves and how they could be used in management

decisions. Structural equation modelling, a statistical technique for testing and

estimating causal relationships using a combination of statistical data and qualitative

causal assumptions (Pearl, 2000) seemed to be the next way to go. In the end it was

decided to keep it simple and use survey analysis to pinpoint industry pain points.

This was decided after preliminary research indicated that the target population was

too small to be able to form a statistically viable control group for the dependent

variable.

By surveying individuals employed in the Icelandic energy sector on dynamic

capabilities as business processes, we could ascertain what capabilities are lacking

and therefore, where improvements are needed. Business processes are actions that

firms engage in to accomplish some objective. Thus, business processes can be

thought of as the routines or activities that a firm develops in order to get something

done (Nelson and Winter, 1982; Porter, 1991). Examples of business processes

include the process for acquiring supplies and other raw materials, the process of

producing products or services, the process of delivering products or services to

customers, and the process of providing after sales service (Porter, 1985). (Ray, Jay

and Muhanna, 2004).

This study relies on the exceptional work of scholars who inspect a basic

question that continues to pester DC researchers: How can something as fluid and

constantly changing as dynamic capabilities be quantitatively measured in a

consistent and replicable way? Although this line of inquiry might initially seem more

45

(or even exclusively) relevant in an academic context, being able to reliably quantify

dynamic capabilities is increasingly important to managers who are expected to

simultaneously develop and deploy their DCs (Ambrosini and Bowman, 2009).

Dynamic capabilities cannot be purchased or attained in the same way that other

assets can (Teece, 1997) and being able to accurately gauge what capabilities are

and what they do can save managers vast amounts of time and resources spent

developing the wrong capabilities.

While this research is not on how to measure capabilities, it is grounded on

an analysis of quantitative information received through a questionnaire that was

sent to all Icelandic energy firms as well as service and engineering firms with

connections to energy firms. Orignially, all management staff was invited to take

part, with a total of between 300-‐400 potential participants. The study benefitted

from the assistance and good faith of several agents in upper management that

granted us a greater level of access than we would have otherwise received.

Nonetheless, this proved inadequate and the criteria was later broadened to include

all staff in these firms to increase the number of participants.

There are a number of limitations and delimitations in this research. Of

course time and budget are the biggest constraints, as well as lack of prior

experience. There is also the small size of the target population, the fairly broad

parameters that were necessary to find a sufficiently large population and the lack of

a control group. These limits are partly inherent in the design of the research and

outside of the researchers control but some of the blame undoubtably lies with the

author.

46

III. METHODS

Quantitative research is a type of empirical investigation, focusing on observable and

verifiable observation rather than theory or logic. It’s called quantitative (as opposed

to qualitative) because its findings are expressed numerically, usually through

statistics or other mathematics. While qualitative research attempts to gain broad

insight and form hypotheses about phenomena, quantitative research is used with

the goal of reaching an unbiased result that is applicable to larger populations. To

that end, a researcher will study a subset of the population called a data sample,

manipulating key variables to observe and explain how those variable affect the

subject. Quantitative research has three main tenets:

• Observation and explanation

• Data collection

• Analysis

Observation and explanation is where research begins. The explanation to an

observation can be put forth in the form of a question or hypothesis, which has to be

proved or disproved. Numerical data is then gathered and statistically analysed with

the goal of reaching a verifiable and generalizable conclusion.

The four most basic type of quantitative research are: survey, correlational,

causal-‐comparative and experimental. This study is a survey study. Survey studies

use polls, questionnaires and interviews to study behavior and attitudes. They can be

conducted with one sample or used to compare several samples. When conducting a

survey study it is important that sampling is conducted in such a manner as to

properly reflect the population. While this is often done through simple random

sampling, such as when the goal of the survey is to measure public opinion,

surveying completely at random would not work in this case. A stratified random

sample method was used instead: the sample was originally a group of managers,

chosen at random from the larger population of all managers working for firms in

the Icelandic energy sector. It was later broadened to encompass all employees

working for firms in the Icelandic energy sector.

47

Not only sampling but also the method by which the survey is conducted can

influence the outcome of the study if done improperly. There are a number of ways

that surveys can be conducted but for this study it was conducted through the

website SmartSurvey, which employs a mix of e-‐mail contact and self-‐administration,

and direct polling. The former method offers participants more control and greater

anonymity. Unfortunately, it also means that participants are more likely not to

finish the survey or ignore it. Therefore, direct polling was performed in many cases

if the participant approved.

As mentioned in the second chapter quantitative research has been lacking in

the subfield of dynamic capabilities. Newbert (2007) suggested that this might be

due to the “relative ease of measuring resources as compared to capabilities and

core competencies” and added that “compared to resources, measuring capabilities

and core competencies often necessitates a greater need for primary data collection

techniques and often introduces a greater potential for slippage and respondent bias

(Newbert, 2007).” This research has two main goals, the first of which is to examine

ordinary and dynamic capabilities in the Icelandic energy sector and what they tell us

about the industries pain points. To achieve that the survey data will be analysed in

the context of general data on industry performance, environmental dynamism and

heterogeneous capabilities. The second goal is to assess the viability of quantatitive

methods that have been used elsewhere to study dynamic capabilities in the

Icelandic energy sector. There are therefore three main questions that lead the

development and conduct of the survey:

1. What difficulties face a researcher attempting to perform quantitative

research on the Icelandic energy sector?

2. Research in which sectors could be used as a model or foundation for

research in the Icelandic energy sector?

3. Do the findings fit our expectations based on theory and in comparison with

the findings of the model research?

48

Design

Survey research is often used because it is inexpensive and simple. It has become

widely used in market research and is especially useful for assessing opinions and

trends but must be designed carefully to avoid biased results. Managers have an

incentive to manipulate the information to portray themselves in a more positive

light, but misinterpreting the data can lead to disastrous strategic planning. How

then do we avoid designing a biased and inaccurate survey? While it is impossible to

create a perfectly accurate survey, due in part to the fluid nature of opinions and

trends as well as financial and time constraints, there are steps we can take to make

the survey as accurate as possible.

Self-‐criticism and reflection are vital to achieving an accurate survey. The

goals of the survey must be clear and concise. Too broad or too narrow and the

survey will be flawed. The sample must be chosen in such a way as to ensure

accuracy and representation. While it is one of the researchers goals to gather data

from as broad a base as possible, not all respondents are relevant to the study. If the

survey were about political opinion or ethics, anybodies opinion would be valid, but

in studies such as this, which are specifically about the opinions of employees in the

energy sector it would be fruitless to survey a larger cross section of the wider

population In this study the sample is chosen at random from the entire population

of energy sector employees in Iceland. This was possible due to the small size of the

Icelandic energy sector. In conversation with instructor Gunnar Óskarsson, a sample

size of roughly 100 respondents was mentioned as a good reference quantity to

produce significant results. The total population of people working in management

positions within the energy sector as defined in this study was roughly 350. I

attempted but was unsuccessful in acquiring enough participants from this

population, and so broadened the parameters to encompass all staff employed with

firms in the energy sector, which roughly quadrupled the number of potential

participants. Enough responses were secured, albeit barely. It was challenging and

required three attempts and the help of insiders in the sector. The challenges faced

will be discussed in more detail in the fifth chapter: Discussion.

49

When choosing how to reach people it’s important to consider the goal of

the research and the nature of the sample. While face-‐to-‐face surveying is accurate

it is also time consuming and can feel embarrassing to participants worried about

privacy and the security of their responses. Sending e-‐mails and allowing the

participants to self-‐administer the survey allows them greater privacy but

unfortunately people are less likely to participate without some form of incentive.

Convincing people to participate was one of the biggest challenges faced in doing

this research. Without any incentive to encourage people to take the time to fill out

the survey and considerable concerns about the security and anonymity of the data

gathered, gathering the required number of responses was more time consuming

than had been planned.

The survey was kept as short and clear as possible to avoid confusion. Rating

questions were used rather than multiple choice questions due to the dynamic

nature of the subject matter. While it is slightly more difficult to analyze the results

gleaned from multiple-‐choice questions and the risk of bias is greater, they are more

open-‐ended and allow for extreme views. Mixing up and randomizing the questions

was not considered necessary because the nature of the research did not need to be

disguised from the participant. It was considered more important that the questions

and subject matter be clear to the participant. Finally, the responses were

numerically coded and tested.

Sample

Before sampling the target population must be identified. The population is a

complete group of people or objects that share some defining common

characteristic established by the researcher. Usually, the target population is not the

same as the accessible population. The former is the entire group whereas the latter

is the portion of the population the researcher has access to. In large studies the

difference between the target and accessible populations can be considerable but

due to the small size of the target population in this study (employees in the

Icelandic energy sector), the entire target population was accessible. Since the goal

50

was to find a sample of roughly 100 participants the choice was made to invite the as

much of the total population to participate in the hopes of gathering enough data to

be statistically relevant.

Fortunately for the purposes of this study, information on Icelandic energy

firms and their management is readily available online, as well as from the

Directorate of Internal Revenue. The following e-‐mail was sent to all Icelandic energy

firms, as well as engineering and service firms that had worked with or for energy

firms:

Kæri viðtakandi, Tilgangur þessa tölvupósts er að bjóða fyrirtækinu þínu þátttöku í nafnlausri rannsókn um aðföng fyrirtækja. Þátttaka í rannsókninni er opið öllum þeim sem sinna stjórnunarstörfum hjá fyrirtækjum sem starfa í orkugeiranum auk verkfræði- og þjónustufyrirtækja sem hafa starfað með orkufyrirtækjum. Rannsóknin er unnin af Oddi Sturlusyni B.A. undir leiðsögn Gunnars Óskarssonar Ph.D. og gildir til M.Sc. gráðu í Stjórnun og Stefnumótun. Ekki er hægt að rekja svör til einstakra fyrirtækja og algjör nafnleynd þátttakenda verður gætt. Vinsamlegast smelltu á hlekkinn til að taka þátt: https://www.esurveycreator.com…

Allar athugasemdir og spurningar má senda á netfangið

[email protected].

The e-‐mail was only sent out in Icelandic but for the sake of the reader I will include

this English translation of that e-‐mail:

Dear recipient,

The purpose of this e-‐mail is to invite your company to participate in an

anonymous survey about company resources. Anybody who serves a

managerial role for a company that is active in the energy sector, as well as

for engineering and service companies which work with energy firms is

welcome to participate.

51

The study is developed and conducted by Oddur Sturluson B.A. under the

supervision of Gunnar Óskarsson Ph.D. and will be used as the foundation of

a thesis for a M.Sc. degree in Strategic Management.

Answers can’t be traced to individual companies and participation is

completely anonymous. Please click the link to participate. http….

All comments and questions can be sent to [email protected].

In the following week, 24 individuals participated in the survey. The week after that,

only 3 participated. It was at this point that I first realized that convincing enough

people to participate would be a more difficult task than I had imagined and indeed

the most difficult part of the entire process. After two weeks and 27 responses I sent

another e-‐mail to reiterate the invitation:

Kæri viðtakandi, fyrir rúmlega tveimur vikum síðan var fyrirtækinu þínu boðið að taka þátt í nafnlausri rannsókn um aðföng fyrirtækja. Við viljum þakka þeim sem hafa tekið þátt en jafnframt hvetja þá sem eiga það eftir að taka þátt áður en lokað verður fyrir þáttöku þann 20. mars næstkomandi. Þátttaka í rannsókninni er opið öllum þeim sem sinna stjórnunarstörfum hjá fyrirtækjum sem starfa í orkugeiranum auk verkfræði- og þjónustufyrirtækja sem hafa starfað með orkufyrirtækjum. Vinsamlegast athugið að þetta gildir um alla sem sinna stjórnunarstörfum, óháð deild eða sérfræðisvið. Rannsóknin er unnin af Oddi Sturlusyni B.A. undir leiðsögn Gunnars Óskarssonar Ph.D. og gildir til M.Sc. gráðu í Stjórnun og Stefnumótun. Ekki er hægt að rekja svör til einstakra fyrirtækja og algjör nafnleynd þátttakenda verður gætt. Vinsamlegast smelltu á hlekkinn til að taka þátt: https://www.esurveycreator.com…

Allar athugasemdir og spurningar má senda á netfangið

[email protected].

Here is the English translation of that e-‐mail:

Dear recipient,

52

Approximately two weeks ago your company was invited to participate in an

anonymous survey about company resources. We would like to thank those

that have already participated and encourage those who have not to do so

before the survey is closed march 20th, 2015. Anybody who serves a

managerial role for a company that is active in the energy sector, as well as

for engineering and service companies which work with energy firms is

welcome to participate. Please note that this includes all managers,

regardless of department or field.

The study is developed and conducted by Oddur Sturluson B.A. under the

supervision of Gunnar Óskarsson Ph.D. and will be used as the foundation of

a thesis for a M.Sc. degree in Strategic Management.

Answers can’t be traced to individual companies and participation is

completely anonymous. Please click the link to participate. http….

All comments and questions can be sent to [email protected].

Following the second email, 11 more people participated and I had a total of 38

participants by the time I had planned on closing the survey, still well below the

approximately 100 responses I needed. At this point I decided that a more “hands

on” approach was needed and contacted several managers with whom I had been in

contact for previous school projects and asked for their help in gathering

participants. Three of them expressed lack of interest or time but the rest were of

great assistance and in the next two months the total and final number of

participants rose to 93. While slightly below the goal, it was sufficient for the

purposes of thes study. The challenges faced in gathering enough responses and

how that challenge was overcome will be discussed in more detail in chapter 5.

As a general rule, samples should be as large as possible to improve how well

they represent the population and to avoid sampling error. While the sample used in

this study is fairly small compared to the samples used in many studies conducted on

larger populations, it represents a larger portion of the target population than would

53

usually be the case abroad and is sufficiently higher than the minimum of 30

participants needed for the use of the central limit theorem. There are also only

three variables, which decreases the need for a large sample.

Measurement

When assessing the validity and reliability of a quantitative study it is important to

be aware of the errors and biases to which the researcher might be susceptible.

There are two main types of errors: Type I and II. A Type I error is when the

researcher mistakenly rejects a true null hypothesis and accepts a false alternative

hypothesis. A Type II error is when the researcher accepts a false null hypothesis and

rejects a true alternative hypothesis. The probability that either a Type I or II error

will occur is referred to as alpha or beta respectively. Alpha is established by the

researcher prior to analysis and is represented as a percentage. An alpha of .05 for

example means that there is a 5% chance of mistakenly rejecting a true null

hypothesis. The probability of rejecting the null hypothesis and reaching a

statistically significant result on the other hand is 1 minus beta or power.

At first performing a power analysis was considered to estimate the

likelihood of committing a Type II error, or to rely on the standard values of .05 for

alpha and .8 for beta. The point of a power analysis is to measure the effect of the

independent variable on the dependent variable. To perform a power analysis would

have meant to estimate the population effect size, gamma, based upon a t-‐test of

the difference between the mean of the data with the mean of the data from the

research the method was based on. While this was initially thought to be a good idea

a colleague pointed out that despite the similarities between the subjects of these

studies and the subject of this study, certain variables were vastly different and

could warp the conclusion. We then pivoted from the original research subject to

this one.

The survey used Likert scale questions, which contained 5 options. One end

was labeled “Strongly Disagree” while the other was marked “Strongly agree” with

the middle option representing a neutral response. The first section of the survey

54

asked respondents about their opinions on energy sector innovation and the role it

plays in their firm’s success and the second section asked respondents about basic

and measurable types of capabilities.

Drnevich and Kriauciunas’s (2010) study on the contribution of ordinary and

dynamic capabilities on relative firm performance was the inspiration and

foundation for this research. They theorized and tested the contributions of

capabilities on firm performance, considering the conditions under which ordinary

and dynamic capabilities increased firm performance amongst a sample of Chilean

firms. They did so, not only by examing the contributions of the capabilities

themselves but also by examing the effects of environmental dynamism and

capability heterogeneity. They found that a dynamic environment decreased the

positive effects of ordinary capabilities while increasing the positive effects of

dynamic capabilities to firm performance. The same was true of capability

heterogeneity.

Building on the conclusion that dynamic capabilities positively affect firms in

dynamic environments and with heterogeneous capabilities I immediately became

interested in how this might affect the Icelandic energy sector, which is both

dynamic and heterogeneous, but quite small on an international scale. A survey was

developed based on the survey method they had used, which used three

independent variables four main categories of dynamic capabilities. The first section

of the survey was originally intended to categorize respondents into three categories

depending on their position towards innovation and their opinion of how innovation

affects their firm. The categories were “managers interested in innovation”,

“managers neutral towards innovation” and “managers disinterested in innovation”.

These categories were also supposed to function as the independent variables that

the study would hinge on. The general hypothesis was that managers who are

interested in innovation would work for firms with greater dynamic capabilities,

either because their interest in innovation increases the odds that their firm

supports innovation or because they work in an innovative environment. We

therefore expected managers who belong to the “interested” category to score their

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firm’s dynamic capabilities higher than the other two categories. After broadening

the target population this section had to be reconsidered however, since it would

most likely skew the results, making them less representative.

Section two depends on the four basic and tangible types of dynamic

capabilities that are used as a measure of the firm’s dynamic capabilities. These are

product development routines, knowledge management routines, acquisition

routines, and exit routines. This study does not specifically address the questions of

life-‐cycle stage theory in the same way that Capaldo et al. (2003) did in their study of

dynamic capabilities in small software firms. According to the life-‐cycle stage theory,

a firm’s life cycle can be segmented into separate and steady stages separated by

changes in the firm’s internal or external environments. Examples of events that

could cause stage changes might be the beginning or end of a cooperative

partnership with another firm or the termination of a key employee. These events

and the stages between them are usually identified by analysing data and interviews

with the firm’s management. The reason life cycles were not specifically addressed is

because the study is not longitudinal and so data is only gathered during one stage.

This is not to say that the information would not be of some value in a longer and

more expensive study but that for the purposes of this study it is unnecessary.

The researcher informally inteviewed several individuals working in the energy

sector to gain some practical insight into what questions should be asked to gain a

relevant working knowledge of the sector. Their feedback was also sought regarding

the survey and some of the wording was altered based on their feedback to ensure

clarity. After that a mass e-‐mail was sent out to all energy firms as well as

engineering and service firms working in the energy sector, inviting them to

participate in the study. After participation, participants were asked to comment on

their opinion of the survey in the hopes of gaining further insight into the data.

Participants answered the survey anonymously on the website e-‐Survey. The original

Icelandic version of the survey is included in the appendix but the English translation

is shown here:

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I: Independent variables: Statements regarding innovation within the firm and its

impact on performance. These statements will be included in the general survey in

the form of a 5-‐item scale (where 1= strongly disagree and 5= strongly agree).

A. I consider myself well informed about energy sector innovation.

B. Innovation played an important role in the firm’s performance in the last 5

years.

C. Innovation will continue to play an important role in the firm’s performance

in upcoming years.

I (continued): The following are 3-‐item multiple-‐choice questions.

D. Do you think energy production will increase, remain the same or decrease in

the next decade?

E. Do you think energy consumption will increase, remain the same or decrease

in the next decade?

F. Do you think the rate of energy sector innovation will increase, remain the

same or decrease in the next decade?

II: Dependent variables: These are 5-‐item scales measuring the responses to the

following statements concerning firm specific dynamic capabilities (where 1 =

strongly disagree and 5 = strongly agree).

The questions in the following section are about product development routines.

Product development routines refer to the process firms need to undergo to bring

a new product or service to market. This includes concept work, product design

and market research. Please answer on a scale of 1 to 5 how much you agree or

disagree with the following statements if 1 = strongly disagree and 5 = strongly

agree.

A. Product development routines.

a. The firm has an effective product development system.

b. There is a common understanding of how product development can

improve firm performance.

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c. There is open communication and teamwork between those

responsible for product development.

d. There is coordination between internal departments to develop

products.

e. The firm’s policies and procedures make product development easy.

The questions in the following section are about knowledge management routines.

Knowledge management routines refer to the definition, recording and

development of knowledge employees have as well incentives for employees to

share and gain knowledge. Please answer on a scale of 1 to 5 how much you agree

or disagree with the following statements if 1 = strongly disagree and 5 = strongly

agree.

B. Knowledge-‐management routines.

a. The firm has an effective knowledge-‐management system.

b. There is a common understanding of how knowledge-‐management

can improve firm performance.


responsible for knowledge-‐management.

d. There is coordination between internal departments to manage and

disseminate knowledge.

e. The firm’s policies and procedures make knowledge-‐management

easy.

The questions in the following section are about acquisition routines. Acquisition

routines refer to the acquisition of all resources that a firm or organization needs

for operations, production or services, whether it be funds, property, labour,

knowledge, technology, materials or other merchandise. Please answer on a scale

of 1 to 5 how much you agree or disagree with the following statements if 1 =

strongly disagree and 5 = strongly agree.

C. Acquisition routines.

a. The firm has an effective resource acquisition system.

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b. There is a common understanding of how resource acquisition can

improve firm performance.


responsible for knowledge acquisition.

d. There is coordination between internal departments to acquire and

deploy resources.

e. The firm’s policies and procedures make resource acquisition easy.

The questions in the following section are about exit routines. Exit routines refer to

jettison of all obsolete resources. Please answer on a scale of 1 to 5 how much you

agree or disagree with the following statements if 1 = strongly disagree and 5 =

strongly agree.

D. Exit routines.

a. The firm has an effective resource jettison system.

b. There is a common understanding of how the jettison of obsolete

resources can improve firm performance.


responsible for the jettison of obsolete resources.

d. There is coordination between internal departments to jettison

obsolete resources.

e. The firm’s policies and procedures make the jettison of obsolete

resources easy.

As mentioned earlier the second section of the survey is divided into four categories

based on basic and observable dynamic capabilities. The categories are product

development routines, knowledge management routines, acquisition routines, and

exit routines. A high score in these categories indicates a high level of dynamic

capabilities and vice versa. A generally poor grade in one or more of these categories

could indicate what needs to be addressed for the Icelandic energy industry to

become more competitive on an international scale.

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Analysis

In this section we’ll list the way the answers are quantified and explain what sort of

results we expected. The possible scores are listed below.

I: Independent variables:

A. 1-‐5

B. 1-‐5

C. 1-‐5

D. 1-‐3

E. 1-‐3

F. 1-‐3

Possible total: 24

II: Dependent variables:

G. 0-‐24

H. 0-‐24

I. 0-‐24

J. 0-‐24

Possible total: 96

The original idea was for participants to be divided into three categories based on

their responses in the first section. Participants could therefore fall in the “managers

interested in innovation”, “managers disinterested in innovation” or “managers

neutral about innovation” category. The probability of falling in any category was

equal but since it is to be expected that a large portion of managers would be found

around the mean, the curve was expected to be normal. The opinions of managers

who are slightly interested or disinterested would really have been of slightly less

importance to us in this version of the study than the opinions of those managers

that represent the extremes of being very interested or disinterested. We expected

to find that managers in the “interested” category score higher in the second section

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than those in the other two categories and that those in the “disinterested” category

score lower than the rest.

Validity

There are several factors that require consideration when ensuring that a survey

returns valid and reliable results. The way the questions are ordered, worded,

formatted and structured can all affect the participants experience of the survey and

indeed whether they choose to participate at all. Validity is the accuracy of the data

we gather while reliability is the consistency of data we gather using this method.

There are a few different types of validity that are used to measure the accuracy of

different aspects of the study. Most surveys have the appearance of validity or face

validity but what might seem like legitimate questions or design on the surface

might not stand up to serious scrutiny. A good survey should have content, internal,

and external validity.

Content validity means that the questions reflect the subject accurately, by

not excluding important issues or giving undue weight to unimportant issues. If we

were to ignore the effect of environmental dynamism on the contribution of

capabilities for example, we might assume that our results were applicable to less

dynamic industries. Internal validity means that we can reasonably expect the

questions to explain the subject. In other words this means that the questions

should be formatted with the goal of finding a relationship between the

independent and dependent variables in mind. External validity means that our

results can be generalized to the target population. This form of validity is closely

connected to sample representativeness and requires that the sample be statistically

similar to the population. Qualitative research can improve the validity of surveys by

imbuing the researcher with a deeper understanding of the subject and the cultural

concerns of his target population.

Reliability is related to internal consistency and the consistency of our results.

This refers both to the consistency of our respondents’ answers, even when the

wording and design of our questions is changed aswell as the degree to which

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different questions measure the same element. There are several ways to test for

reliability, including but not limited to split sample comparisons or Cronbach’s Alpha.

Validity and reliability do not always go hand in hand and even an invalid study can

be reliable if it is repeatedly wrong in the same way.

Assumptions

Assumptions are things that are accepted as true withouth having been proved. They

are essential and it would be impossible to conduct research without them.

Assumptions can be simple, like that people will tend to act in their own best

interest or that participants will be honest when they respond to the researchers

questions. While it is not necessary to prove ones assumptions, they must be

justified. It is not enough simply to state ones assumptions. For example, a

researcher could justify his assumption that participants will be honest by ensuring

his participants’ anonymity and security, giving them no reason to answer

dishonestly. It can also help to allow participants to comment and ask questions

about the survey to assure them that the results will faithfully reflect their answers

and not be taken out of context.

The assumptions we use in quantitative research are not the same as the

ones used in qualitative or mixed research. The most important assumptions of

quantitative research are that it takes an objective stance to trying to answer or

understand questions or phenomena – the subjective state of the research topic or

of the researcher are not addressed. It is supposed to be unbiased and free of

values. It is positivist and deductive, stemming from hypotheses and leading to

observations. The results of properly done quantative research in social fields are

considered to be generalizable in different social situations and the positivistic

scientific method is considered the cornerstone of reaching the correct conclusions.

In short, the assumptions used in quantitative research are based on the idea that

people, experiences, phenomena and reality are independent of personal experience

and objectively measurable. If something is not measurable it is ignored.

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These assumptions permeate the quantitative method with strengths and

weaknesses. Due to the vast amount of published research on which researchers can

base their studies and stringent rules and guidelines quantitative research is

consistent and can be easily compared to other research on the subject. Since the

researcher is less visible criticism is more likely to be focused on the research itself

rather than critics’ opinion of the researcher. The researchers objectivity also

decreases the effect he or she has on the subject being studied, although some

scholars have cast doubt on the degree to which this is true. Further more,

quantitative research can be conducted fairly quickly and returns a solid answer

rather than an interpretation or opinion on the subject.

These strengths have a flip side however: stringent rules and guidelines can

also mean that researchers interpret data so that it is consistent with prior research

rather than take the risk of their research being discounted. It is a common criticism

by proponents of qualitative research methods that the results of quantitative social

research do not fit with the experience of those involved in the subject. While

quantitative data can seem consolingly precise and clear cut, the reality of a

situation might belie a simple explanation. Despite the different assumptions used in

different research paradigms there is much to be learned from the different

approaches, given that they are properly used and interpreted.

Another thing the researcher has to be aware of and address are weaknesses

in the study called limitations that are beyond the researchers control. These can be

time, money, or the scope of preexisting data on the subject. Delimitations are limits

to the scope of the study that are in the researchers control. These can be the goals

of the research, the research method and the variables. All reseach has limitations

and delimitations; indeed the very act of choosing a specific research subject

represents delimitation since it excludes all other subjects. The delimitations

elucidate the criteria participants must fulfill and what population I can generalize

the results to. For example, the results of this study are generalizable to managers

(1), who currently work for firms active in the energy sector (2) in Iceland (3).

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IV: FINDINGS

Brief overview

What sort of dynamic capabilities are common in Icelandic energy firms

and what can they tell us about industry pain points?

This is the research question that lies at the heart of this study. It is a humble

contribution to the research on the contribution of dynamic capabilities to

innovation and of dynamic capabilities and innovation to firm performance but

worth exploring. With that goal in mind I performed the aforementioned survey with

the hope of shedding some light on the subject.

In a nutshell, the results of the survey are concurrent with other research on

the subject and in line with my expectations. There are of course a number of other

related questions that are left unanswered however. Do managers feel the same as

other employees? Do their firms actually have more dynamic capabilities or are they

simply more likely to identify them due to their interest in innovation? These

questions and more will be addressed in the next chapter: Discussion.

For now I will restrain myself to discussing the data itself. To recap, the four

categories of dynamic capabalities used were product development, knowledge

management, acquisition and exit routines. It’s interesting that some categories

were generally rated higher than others across the board. Unfortunately data to

compare the Icelandic energy sector to other countries’ energy sectors was

unavailable. I am therefore unable to speculate whether this characterizes the

energy industry as a whole or is a culturally specific phenomenon.

Results

The first 6 questions, regarding innovation within the firm and its impact on firm

performance were split into two categories. The first three were 5-‐item scales where

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1 = strongly disagree and 5 = strongly agree. The next three after that were 3-‐item

multiple-‐choice questions where the options were: Increase, Remain the same and

Decrease. These first six questions represented the independent variable of the

study, where respondents would be categorized according to their knowledge of,

and interest in, innovation. In response to the first statement “I consider myself well

informed about energy sector innovation”, 17 disagreed or strongly disagreed, 24

were neutral and 52 agreed or strongly agreed. Seeing as how the respondents work

in the energy sector, it is not particularly surprising that they would consider

themselves well informed about innovation in that sector, especially if they compare

their knowledge of the subject to that of people uninvolved in the sector. There is

also the chance that the respondents are overestimating their knowledge, although

it is difficult to surmise what effect such psychological factors might have on

participant responses. All things considered, a predominantly positive response such

as this one indicates that the chosen target population is suitable for the subject

being discussed.

Question 1: (1:9, 2:8, 3:24, 4:34, 5:18)

The next two questions hint at an interesting foundation for further research I had

not anticipated. While 44 agreed or strongly agreed that innovation had played an

important role in their firm’s performance in the last 5 years, 60 agreed or strongly

65

agreed with the statement that innovation will continue to play an important role in

the firm’s performance in upcoming years.

Question 2: (1:9, 2:16, 3:24, 4:35, 5:9)

This seeming discrepancy raises the question: what has changed? If people do not

think innovation has been important in the past, why do they expect it to be

important in the future? Has their been some external development recently that

could explain this view?

Question 3: (1:17, 2:8, 3:8, 4:56, 5:4)

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The responses to the next three questions show an overwhelming view that energy

production, consumption and innovation will increase in the future. It is safe to

assume that many of those respondents who think that production or consumption

will decrease think that innovation will trend towards greater utility and efficiency in

the energy sector. I say this since it is unlikely that a growing population will need

less energy or be easily convinced to decrease their consumption, meaning that

energy will have to be more efficiently distributed and utilized.

Question 4: (1:8, 2:4, 3:81)

Question 5: (1:9, 2:16, 3:68)

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Question 6: (1:2, 2:13, 3:78)

The following 20 questions were split into 4 sections: product development routines,

knowledge management routines, acquisition routines and exit routines. These are

all 5-‐item scales measuring the responses to statements made regarding dynamic

capabilities where 1 = strongly disagree and 5 = strongly agree. These 4 sections

represent the dependent variables used in my analysis. Questions seven to eleven

were about the process firms need to undergo to bring a new product or service to

market, called product development routines.

Question 7: (1:13, 2:17, 3:24, 4:34, 5:5)

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Product development routines include concept work, product design and market

research. When looking at the responses regarding product development routines,

the firms in question seem to be doing alright. There are more who agree with the

statements than disagree with the statements but there is also a significant amount

that responded neutrally.

Question 8: (1:10, 2:22, 3:22, 4:33, 5:6)

The statement that received the most neutral responses was number 9: “There is

open communication and teamwork between those responsible for product

development.” 34 people responded neutrally while 21 disagreed or strongly

disagreed and 38 agreed or strongly agreed. The responses in the product

development section seem to be rather normally distributed, with few respondents

answering strongly one way or the other.

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Question 9: (1:2, 2:19, 3:34, 4:36, 5:2)

The next question: “There is coordination between internal departments to develop

products.” received a majority of positive responses. This is interesting because

question 9 and 10 are quite similar. How can internal departments coordinate to

develop products if there isn’t open communication and teamwork between those

responsible for product development? There would seem to be some ambiguity

regarding the degree to which managers control coordination between

departments.

Question 10: (1:1, 2:19, 3:26, 4:45, 5:2)

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Question 11: (1:0, 2:25, 3:32, 4:35, 5:1)

Questions twelve to sixteen were about knowledge-‐management routines.

Knowledge-‐management routines refer to the definition, recording and

development of knowledge employees have as well incentives for employees to

share and gain knowledge. Interestingly, 55 respondents disagreed with the

statement that the firm they work for has an effective knowledge-‐management

system and 6 strongly disagreed.

Question 12: (1:6, 2:55, 3:13, 4:17, 5:2)

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This result would seem to be a damning condemnation of knowledge-‐management

routines in the Icelandic energy sector. The responses to the following statements in

the knowledge-‐management section would seem to confirm this notion.

Question 13: (1:9, 2:9, 3:48, 4:25, 5:2)

Question 14: (1:3, 2:17, 3:38, 4:33, 5:2)

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Question 15: (1:4, 2:25, 3:37, 4:25, 5:2)

The majority of respondents in all 5 questions respond neutrally or in disagreement.

This indicates that participants consider their firm’s knowledge-‐management

systems subpar.

Question 16: (1:9, 2:16, 3:41, 4:26, 5:1)

Questions seventeen to twenty-‐one are about acquisition routines. Acquisition

routines refer to the acquisition of all resources that a firm or organization needs for

operations, production or services, whether it be funds, property, labour,

knowledge, technology, materials or other merchandise.

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Question 17: (1:11, 2:9, 3:26, 4:37, 5:10)

The responses in this section were largely positive. It was only in question 18: “There

is a common understanding of how resource acquisition can improve firm

performance,” that positive responses were not the majority.

Question 18: (1:3, 2:26, 3:25, 4:28, 5:10)

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Question 19: (1:2, 2:26, 3:13, 4:51, 5:1)

Question 20: (1:1, 2:23, 3:17, 4:47, 5:4)

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Question 21: (1:1, 2:25, 3:11, 4:54, 5:2)

Questions twenty-‐two to twenty-‐six are about exit routines. Exit routines refer to the

jettison of all obsolete resources.

Question 22: (1:10, 2:9, 3:46, 4:27, 5:1)

The responses to these questions were similar to the responses in the knowledge-‐

management section, which is to say largely neutral or negative.

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Question 23: (1:8, 2:28, 3:36, 4:12, 5:9)

Question 24: (1:8, 2:9, 3:54, 4:19, 5:3)

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Question 25: (1:8, 2:27, 3:40, 4:15, 5:3)

Question 26: (1:9, 2:17, 3:47, 4:19, 5:1)

Neutral responses, while not explicitly negative, can be viewed as a certain failure on

the part of the firms in question. If employees are unfamiliar with the subject, we

can assume that management is not placing much emphasis on it.

Descriptive analysis

The data is interesting although when analysed in context with existing research on

the energy industry and the Icelandic market, not especially surprising. The Icelandic

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energy sector is small and dynamic, with an emphasis on technological skill and an

interest in innovation. The luke-‐warm responses to questions about knowledge

management seem to echo prior research about the lack of consistent and explicit

knowledge management in Icelandic firms. Likewise, resource jettison is difficult in a

market with many financially significant long-‐term investments. The inclusion of staff

in addition to managers may also mean that many of the recipients are unfamiliar

with their firm’s resource jettison routines.

Validity/reliability

To perform a validity and reliability analysis of the results would require more time

and resources than are available, but we can judge what sort of analysis would be

suitable from the methods used in this study. As mentioned earlier, reliability is the

degree of stability exhibited when a measurement is repeated under identical

conditions. Validity on the other hand is how well a survey measures what its

intended subject. The unstable nature of the subject being studied creates a certain

lack of reliability. People’s opinions frequently change and don’t necessarily reflect

real, objective changes in the industry. To assess the reliability of the study, there

are three types of analysis that could be performed: a test-‐retest analysis, alternate-‐

form analysis and internal consistency analysis.

The test-‐retest analysis is the most commonly used reliability test in survey

research and is performed by asking the same respondents to take the same survey

twice at different times to check how stable their responses are. The results are

quantified with a correlation coefficient (r). If an observer gathers data,

intraobserver reliability can be gauged by having the same observer make two

separate recordings. The stability problem mentioned in the last paragraph can be

countered by retesting the survey shortly later. Opinions are more likely to change

over a long period of time. It is important to avoid overusing this method though, or

else the practice effect, which occurs when individuals become familiar with the

survey answer based on their memory of the last answer rather than their sincere

response, inflating the reliability estimate.

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Another commonly used test is the alternate form analysis, in which

questions measuring the same things are worded or ordered differently. The

researcher must be careful to change the questions slightly so that they are similar

but not identical. It is important that the question still clearly refer to the same

subject. One can also avoid altering the wording of the question by changing the

order or wording of the response options without changing their meaning. This

compels participants to read the response options carefully and genuinely consider

their answer. Whichever method is chosen, it is imperative to have the two forms

equivalent and with the same degree of difficulty, otherwise the attributes being

measured will not be the same. The alternate-‐form analysis can be performed at the

same time or at separate points in time. When performed at the same time the

sample can be split in half and the halves compared. If the sample is large enough,

you can split it into more forms.

The third form of analysis is the internal consistency analysis, which is applied

to multiple items that measure the same concept. This form of analysis uses

Cronbach’s coefficient alpha to measure how well different items measure different

attributes of the same variable. Internal consistency reliability is not the most

relevant form for this particular study.

In addition to the reliability analyses, it would be prudent to perform validity

measures to check how well the survey measures the subject is was supposed to

measure. Technically speaking there are four types of validity, although face validity

is not universally considered a real measure of validity. Face validity refers to how

valid the survey appears at a glance, even to people without prior knowledge or

training in that field. Content validity is another qualitative measure of validity

although reviewers familiar with the subject at hand measure this one. In a nutshell,

content validity means that the survey includes (and excludes) everything it should.

A more quantitative form is of criterion validity, which measures how well the

research model or instrument used compares to other models or instruments. The

most difficult and valuable form is construct validity. This measures how accurately

the research model or instrument measures the subject. If several differing research

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methods all had a high degree of construct validity they would return similar results

about the same subject. This is the most work-‐intensive measurement, since it

requires different approaches performed by multiple researchers on the same

subject, which must not be confused with similar subjects.

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V. DISCUSSION

The findings of this study seem to indicate that knowledge management and

resource jettison routines need improvement in the Icelandic energy sector. The

findings can be interpreted in a number of ways however, which are not mutually

exclusive. Participants could have a skewed opinion of what routines are working

well based on their own departments, the results may apply to firms in other

comparably dynamic sectors, the results may not be bound to the Icelandic energy

sector and so on.

All of these possible interpretations provide intriguing possibilities for further

research. If we rely solely on existing literature on the DCV however, it would seem

that the staff’s capabilities likely have more influence on the corporate culture than

the other way around. In their critique of the importance of dynamic capabilities,

Eisenhardt and Martin (2000) concluded that resource configurations are more

important than dynamic capabilities in deciding long-‐term competitive advantage. If

this is the case it would mean that the configuration of individual level skills and

interest in innovation are more important to the success of the firm than the firm

level capabilities to alter those configurations.

This scope of this study is of course, much too small to be able to declare with any

certainty whether individual level skills or firm level capabilities come first in this

proverbial “chicken or the egg” scenario. In fact, due to the pivot from researching

only managers to researching all staff in any capacity, the study became less about

management and more about corporate culture. This pivot was unavoidable, due to

the difficulty of producing a statistically viable sample from such a small population

as managers in the Icelandic energy sector. In hindsight, the best way to perform a

quantitative study of such a small population would be to perform a longitudinal

study. Time and resource constraints make such a study beyond the reach of an

M.Sc. student but would return the most reliable results.

If we consider the results in the context of DCV criticisms however, we can

see some interesting implications from the results of this study. Let us first consider

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capabilities and how they are developed or learned. Capabilities can be gained or

lost and the current level of capability can be changed by new inflows or outflows of

capabilities. Inflows and outflows and organizational learning are affected by the

current configuration of resources and capabilities, both at an individual and at a

firm level. While interpreting the data it struck me that the main resource, human

resources, was underrepresented in the questionnaire. No questions were about the

recruitment and selection of new human resources, which should be seen as an

immensely important capability.

Knowledge management was another section that could have been done

differently. The difference between tacit and explicit knowledge, as well as the

unspoken and varying assumptions made by respondents make such a rudimentary

inspection of knowledge management routines superficial. After all, it tells us

nothing of what kind of knowledge is relevant or how respondents define

knowledge. Firms also don’t really seek to make all tacit knowledge or behaviour

explicit or codified, even if they could. Corporate culture and the way knowledge is

transferred in the work place is a highly social phenomenon and often difficult to put

into words. Besides the difficulty of codifying tacit knowledge, there is also a degree

of risk involved. Some procedures, systems and behavior are suitable for codification

and stringent implementation, but some preexisting knowledge or procedures can

be flawed, outdated or detrimental. Once they are made explicit however it can

prove difficult to get rid of them, since they become part of “how things are done

around here”.

There is also the issue of anonymity in a market where one firm is by far the largest.

While anonymity is considered important to reach an unbiased solution as well as for

the protection of the privacy of the participants, it also means that there is no way of

knowing whether one or more firms are overrepresented. This should not be a

problem due to the randomization of respondents, but it would have been

preferable for the researcher to have some way to be able to tell what firms were

being discussed without jeopardizing the respondent’s anonymity.

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By far the most interesting result of this study was the neutral response that the

sections on knowledge management and resource jettison received. This neutrality

can be interpreted as a lack of familiarity with the subject and the routines

employed by the firm, or indeed that the lack of familiarity stems from the lack of

any formal routines. It has been noted in earlier research that knowledge

management is widely lacking in Icelandic firms and so a general lack of

understanding in that field is not entirely surprising, what is surprising is the lack of

familiarity with jettison routines, which are the flip side of acquisition routines. This

could indicate that the emphasis within the firm is so firmly placed on resource

acquisition that getting rid of obsolete resources is not even given a second thought.

This brings to mind an anecdote about the recent redecoration of Gamla Bíó, the

oldest theatre in Iceland. Those who had purchased it wanted to redecorate the

interior, and so without giving it a second though ripped out the old furnishings and

threw them out into trash containers to be taken away. Designers, woodworkers and

many others saw the famous old chairs and furniture and immediately jumped at the

opportunity to own these beautiful and historical furnishings which would have

otherwise have ended up in a landfill. The new owners hadn’t even given it a second

thought that these old but still functional resources could be of any value.

84

VI. CONCLUSION

Summary

In the introduction of my thesis I discussed the need for this sort of research, what

problem it is that I hoped to illuminate and discussed the theoretical and practical

context of my research. In the chapter Theory I reviewed the relevant literature,

layed out the scope of the study and justified my choice of research model. In the

chapter after that, Methods, I went into further details about the research model

and how it was employed, as well as how I planned to test for validity and what

methodological assumptions I made. In Findings I discussed the data gathered during

the implementation of the research method. I go into how I would test for validity

and test the hypotheses. I then discuss the application of the research method and

provide a short descriptive analysis in the next chapter, Discussion. In this final

chapter, I will discuss my thoughts now that I have completed the study, what

implications the findings have and what I would do differently if I were to repeat the

study, as well as offering several suggestions for further research on the subject.

The topic of this study has changed considerably since I wrote the first

research plan, both in reaction to external challenges as well as the development of

my own knowledge on the subject matter. At first my goal was to contribute to the

quantitative research needed to illuminate the dynamic capability view. My

impetuousness caught up with me and the further I proceeded with my research the

more my limitations and the limitations of my study due to time and resource

constraints became clear. Originally, my goals were to improve the position of

academic research in the field of strategic management, especially in the subfield of

dynamic capabilities and to improve managerial decision making in the Icelandic

energy sector. Unsurprisingly, these rather ambitious goals took on more specific

and attainable forms in the months to come.

While strategic management does have limitations, it is nonetheless a

valuable tool for firms to position themselves to be able to react quickly and

85

appropriately to unforeseen external factors. This is especially true when pursuing

long term competitive advantage in a dynamic environment, such as the energy

sector. Dynamic capabailities and innovation are intrinsically linked concepts and the

main goal of this study was to gain further insight into the relationship between

them. I decided to perform a quantitative study due to the perceived need for more

quantatitive research in the field of strategic management. In hindsight, I think that

the Icelandic energy sector requires further qualitative research, due to cultural

factors that differentiate the Icelandic energy sector from the global and American

sectors on which most of the relevant literature is based. Any further quantitative

research would in my opinion be most productive if it used a longitudinal format and

received in-‐depth access to numerical data from the subject firms – something that

was beyond my reach and the humble scope of my research. The primary goal of this

research was to test whether this form of quantitative study could be used on a

small population. Judging from my experience, this method is insufficient for the

needs of any researcher hoping to reap meaningful quantitative data from such a

small sample. Different methods are needed.

There are a number of interesting possibilities that could not be confirmed or

denied with the data collected. This is not to say that the data is of no value but that

the format originally intended to categorize the respondents into groups of

“uninterested”, “neither uninterested or interested” or “interested” was insufficient

to account for the overwhelmingly “interested” response the study received in the

first section. This is indicative of the fundamental shortcomings of the method in this

environemt but is also likely due to two errors on my part: the name of the study

given and its explanation may have been more likely to attract respondents

interested in or positive towards innovation. The first section should also have been

more thorough and randomized, so as to check internal validity. The nature of the

population also changed midway through the study, which no doubt influenced the

responses I received. When it became clear to me that of the roughly 350 individuals

who perform a managerial role in the Icelandic energy sector, less than 40 would be

willing to answer I realised that I needed to cast a wider net. I then resent my

invitation to include all staff of firms that produce, distribute or sell energy and the

86

engineering and service companies that work with them. While this gave me a much

larger target population and made it much easier for me to receive the roughly 100

responses I had hoped for, I worry that the study’s relevance and accuracy suffered

as a result.

Conclusions

The responses to our questionnaire lead us to a few important conclusions, albeit

not the ones we were looking for. Knowledge management and resource jettison

systems can be seen as lacking in this field, although product development routines

and resource acquisition are relatively strong. This gives the impression that the

Icelandic energy sector is in general more preoccupied with rapid growth than with

rapid adaptability. This is also reflected in the overwhelmingly optimistic responses

gathered that energy consumption, production and innovation were likely to

increase in the future. It is also reflected in media coverage and public statements by

Icelandic energy firms, who continuously announce new projects and plans for

further expansion. In a way it makes sense – Iceland has grown and become

increasingly modern, industrial and hungry for energy. The Icelandic energy sector

emphasizes rapid growth at the expense of adaptability because things only seem to

be able to go up from here. What’s particularly interesting however is that few of

the respondents seem to consider that an increase in energy sector innovation

would result in less consumption, and less need for expanded operations. Instead,

the goal seems to be to expand operations abroad to justify further growth.

Implications

As I’ve mentioned a few times before in this essay, the method I used could have

been better suited to the environment, but another limitation I now realize affected

the validity of my study is the ambiguity surrounding what methods are to be used in

dynamic capability research and indeed what constitutes a dynamic capability. I

would therefore first and foremost advise that further qualitative research is

performed on the subject of dynamic capabilities in the Icelandic energy, as a

87

foundation on which to decide which quantitative research methods and

experiments would be most suitable in the future. Due to the small size of the target

population, an in-‐depth longitudinal study, taking place over a span of a few years

would in my opinion be the most likely to return reliable and important results. All

four categories of dynamic capabilities studied in this thesis: product development,

knowledge management, resource acquisition and resource jettison offer important

avenues of research for future studies. The original goal of findind industry wide pain

points gives way to studying the relationship between individual level skills and firm

level capabilities – is it the capable organization that picks and creates skilled staff or

is it the skilled staff that pick and create a capable organization – is also a very

exciting and important subject, although it might be unhandy for such a small

statistical population.

88

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Appendix.

Spurningalisti vegna rannsóknar á aðföngum fyrirtækja

Síða 1

Eftirfarandi er rannsókn til M.Sc. gráðu í Stjórnun og Stefnumótun og er ætluð fólki sem sinnir stjórnunarstörfum hjá fyrirtækjum semstarfa í orkugeiranum auk verkfræði- og þjónustufyrirtækja sem hafa starfað með orkufyrirtækjum.

Þátttaka er nafnlaus til að tryggja nafnleynd þáttakenda.

Rannsóknin er unnin af Oddi Sturlusyni undir leiðsögn Gunnars Óskarssonar Ph.D..

Öllum athugunum og spurningum má senda á netfangið [email protected].

Síða 2

Vinsamlegast svaraðu á bilinu 1 til 5 hversu ósammála eða sammála eftirfarandi staðhæfingum þú ert, þar sem 1 =mjög ósammála og 5 = mjög sammála.

Ég tel mig vel upplýsta/nn um nýsköpun í orkugeiranum.

1

2

3

4

5

Nýsköpun hefur gegnt veigamiklu hlutverki í afkomu fyrirtækisins sem ég starfa hjá á síðustu 5 árum (1 = mjögósammála - 5 = mjög sammála).

1

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4

5

Nýsköpun mun áfram gegna veigamiklu hlutverki í afkomu fyrirtækisins á komandi árum (1 = mjög ósammála - 5 = mjögsammála).

1

2

3

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5

Síða 3

Vinsamlegast veldu það svar sem þú telur endurspegla þína skoðun á eftirfarandi spurningum.

Heldurðu að orkuframleiðsla eigi eftir að aukast, standa í stað eða minnka næsta áratuginn?

Aukast.

Standa í stað.

Minnka.

97

Heldurðu að almenn orkuneysla og orkunotkun eigi eftir að aukast, standa í stað eða minnka næsta áratuginn?

Aukast.

Standa í stað.

Minnka.

Heldurðu að nýsköpun í orkugeiranum eigi eftir að aukast, standa í stað eða minnka næsta áratuginn?

Aukast.

Standa í stað.

Minnka.

Síða 4

Eftirfarandi spurningar eru um vöruþróun. Með vöruþróun er átt við það ferli sem þarf að ganga í gegnum til að ný varaeða þjónusta komist á markað, til dæmis hugmyndamótun, vöruhönnun og markaðsrannsóknir. Vinsamlegast svarið ábilinu 1 til 5 hversu ósammála eða sammála eftirfarandi staðhæfingum þú ert þar sem 1 = mjög ósammála og 5 = mjögsammála.

Fyrirtækið býr yfir árangursríku vöruþróunarkerfi.

1

2

3

4

5

Starfslið fyrirtækisins gerir sér í heildina grein fyrir þeim áhrifum sem vöruþróun getur haft á afkomu fyrirtækisins (1 =mjög ósammála - 5 = mjög sammála).

1

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5

Opin samskipti og samvinna ríkir meðal þeirra sem bera ábyrgð á vöruþróun (1 = mjög ósammála - 5 = mjög sammála).

1

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4

5

Mismunandi deildir innan fyrirtækisins vinna saman til að þróa vörur (1 = mjög ósammála - 5 = mjög sammála).

1

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5

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Stefnur og aðferðir fyrirtækisins auðvelda vöruþróun (1 = mjög ósammála - 5 = mjög sammála).

1

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3

4

5

Síða 5

Eftirfarandi spurningar eru um þekkingarstjórnun. Með þekkingarstjórnun er átt við hverskonar skilgreiningu,skrásetningu og uppbyggingu á þekkingu starfsmanna í fyrirtækinu auk hvatningu til starfsfólks að deila og afla nýrriþekkingu. Vinsamlegast svarið á bilinu 1 til 5 hversu ósammála eða sammála eftirfarandi staðhæfingum þú ert þar sem1 = mjög ósammála og 5 = mjög sammála.

Fyrirtækið býr yfir árangursríku þekkingarstjórnunarkerfi.

1

2

3

4

5

Starfslið fyrirtækisins gerir sér í heildina grein fyrir þeim áhrifum sem þekkingarstjórnun getur haft á afkomufyrirtækisins (1 = mjög ósammála - 5 = mjög sammála).

1

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4

5

Opin samskipti og hópvinna ríkir meðal þeirra sem bera ábyrgð á þekkingarstjórnun (1 = mjög ósammála - 5 = mjögsammála).

1

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5

Mismunandi deildir innan fyrirtækisins vinna saman til að stjórna og miðla þekkingu (1 = mjög ósammála - 5 = mjögsammála).

1

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5

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Stefnur og aðferðir fyrirtækisins auðvelda þekkingarstjórnun (1 = mjög ósammála - 5 = mjög sammála).

1

2

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4

5

Síða 6

Eftirfarandi spurningar eru um öflun aðfanga. Aðföng eru allt það sem fyrirtæki eða stofnun þarf til eigin rekstrar,framleiðslu eða þjónustu,hvort heldur fjármunir, húsnæði, vinnuframlag, þekking, tæki, efni eða annar varningur. Vinsamlegast svarið á bilinu 1 til5 hversu sammála eða ósammála eftirfarandi staðhæfingum þú ert þar sem 1 = mjög ósammála og 5 = mjög sammála.

Fyrirtækið býr yfir árangursríku kerfi til að afla aðfanga.

1

2

3

4

5

Starfslið fyrirtækisins gerir sér í heildina grein fyrir þeim áhrifum sem öflun aðfanga getur haft á afkomu fyrirtækisins (1= mjög ósammála - 5 = mjög sammála).

1

2

3

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5

Opin samskipti og samvinna ríkir meðal þeirra sem bera ábyrgð á öflun aðfanga (1 = mjög ósammála - 5 = mjögsammála).

1

2

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4

5

Mismunandi deildir innan fyrirtækisins vinna saman að öflun og nýtingu aðfanga (1 = mjög ósammála - 5 = mjögsammála).

1

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3

4

5

100

Stefnur og aðferðir fyrirtækisins auðvelda öflun aðfanga (1 = mjög ósammála - 5 = mjög sammála).

1

2

3

4

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Síða 7

Eftirfarandi spurningar eru um losun úreldra aðfanga. Vinsamlegast svarið á bilinu 1 til 5 hversu ósammála eða sammálaeftirfarandi staðhæfingum þú ert þar sem 1 = mjög ósammála og 5 = mjög sammála.

Fyrirtækið býr yfir árangursríku kerfi til að losa úreld aðföng.

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Starfslið fyrirtækisins gerir sér í heildina grein fyrir þeim áhrifum sem losun úreldra aðfanga getur haft á afkomufyrirtækisins ((1 = mjög ósammála - 5 = mjög sammála).

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Opin samskipti og hópvinna ríkir meðal þeirra sem bera ábyrgð á losun úreldra aðfanga (1 = mjög ósammála - 5 = mjögsammála).

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Mismunandi deildir innan fyrirtækisins vinna saman til að losa úreld aðföng (1 = mjög ósammála - 5 = mjög sammála).

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Stefnur og aðferðir fyrirtækisins auðvelda losun úreldra aðfanga (1 = mjög ósammála - 5 = mjög sammála).

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» Redirection to final page of eSurvey Creator (change)

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Question: 1 2 3 4 5 6 7 8 9 10

Strongly disagree 9 9 17 X X X 13 10 2 1

Disagree 8 16 8 X X X 17 22 19 19

Neutral 24 24 8 X X X 24 22 34 26

Agree 34 35 56 X X X 34 33 36 45

Strongly agree 18 9 4 X X X 5 6 2 2

Question: 11 12 13 14 15 16 17 18 19 20

Strongly disagree 0 6 9 3 4 9 11 3 2 1

Disagree 25 55 9 17 25 16 9 26 26 23

Neutral 32 13 48 38 37 41 26 25 13 17

Agree 35 17 25 33 25 26 37 28 51 47

Strongly agree 1 2 2 2 2 1 10 10 1 4

Question: 21 22 23 24 25 26

Strongly disagree 1 10 8 8 8 9

Disagree 25 9 28 9 27 17

Neutral 11 46 36 54 40 47

Agree 54 27 12 19 15 19

Strongly agree 2 1 9 3 3 1

Question: 4 5 6 Increase 81 68 78 Remain the same 4 16 13 Decrease 8 9 2

Dynamic Capabilities and Pain Points in the Icelandic Energy ...

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