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Conceptualizing and measuring capabilities: methodology and empirical application
Author(s) -
Dutta Shantanu,
Narasimhan Om,
Rajiv Surendra
Publication year - 2005
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.442
Subject(s) - operationalization , extant taxon , conceptualization , dynamic capabilities , sample (material) , set (abstract data type) , resource (disambiguation) , econometrics , resource based view , estimation , stochastic frontier analysis , economics , industrial organization , computer science , business , marketing , microeconomics , management , artificial intelligence , computer network , philosophy , chemistry , epistemology , chromatography , evolutionary biology , competitive advantage , biology , programming language , production (economics)
This paper attempts to operationalize and measure firm‐specific capabilities using an extant conceptualization in the resource‐based view (RBV) literature. Capabilities are conceived as the efficiency with which a firm employs a given set of resources (inputs) at its disposal to achieve certain objectives (outputs). We expand on extant theoretical literature on relative capabilities, by delineating the conditions that have to be met for relative capabilities to be measured non‐tautologically. We then proceed to suggest an estimation methodology, stochastic frontier estimation (SFE), that allows us to infer firm capabilities. We illustrate this technique with a sample of firms in the semiconductor industry. Our findings underscore the heterogeneity in R& D capability across firms in this industry, as well as the persistence in these capabilities over time. We also find that the market rewards high R& D capability firms, in that they show the highest average values of Tobin's q . Copyright © 2004 John Wiley & Sons, Ltd.