Stages of Organizational Transformation in Transition Economies: a Dynamic Capabilities Approach

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Journal of Management Studies 47:3 May 2010 doi: 10.1111/j.1467-6486.2009.00856.x

Stages of Organizational Transformation in Transition Economies: A Dynamic Capabilities Approach

Sarah E. A. Dixon, Klaus E. Meyer and Marc Day
University of Bath; University of Bath; Henley Business School, University of Reading abstract How do organizations previously dominated by the state develop dynamic capabilities that would support their growth in a competitive market economy? We develop a theoretical framework of organizational transformation that explains the processes by which organizations learn and develop dynamic capabilities in transition economies. Specifically, the framework theorizes about the importance of, and inter-relationships between, leadership, organizational learning, dynamic capabilities, and performance over three stages of transformation. Propositions derived from this framework explain the pre-conditions enabling organizational learning, the linkages between types of learning and functions of dynamic capabilities, and the feedback from dynamic capabilities to organizational learning that allows firms in transition economies to regain their footing and build long-term competitive advantage. We focus on transition contexts, where these processes have been magnified and thus offer new insights into strategizing in radically altered environments.

INTRODUCTION Enterprises in transition economies have faced unusually radical transformation processes, while lacking both the resources and capabilities to face competitive markets, and the internal routines and processes that would facilitate organizational change (Newman, 2000; Uhlenbruck et al., 2003). At the outset, firms were often constrained by their socialist institutional imprinting (Kriauciunas and Kale, 2006). Their operational capabilities were also geared towards a now defunct economic system. This system had discouraged entrepreneurship, innovation and experimentation, such that the dynamic capabilities required for organizational change and adaptation in a volatile environment are largely absent. This setting thus provides a useful context to explore how organizations develop dynamic capabilities and bring about organizational change when radical external institutional changes render their organizational

Address for reprints: Sarah E. A. Dixon, University of Bath, School of Management, Bath BA2 7AY, UK (s.e.a.dixon@bath.ac.uk). © 2009 Blackwell Publishing Ltd and Society for the Advancement of Management Studies. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

Stages of Organizational Transformation in Transition Economies

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capabilities largely irrelevant. In particular this setting raises questions about how organizations, facing radical external institutional change, develop the dynamic capabilities required to compete in a volatile market economy. How does this process interact with leadership and organizational learning, and how is it conditioned by and supportive to organizational performance? In the present paper, we explore these questions and develop a theoretical framework that explains how changing leadership styles and processes of organizational learning lead to the development of different types of dynamic capabilities over subsequent stages of organizational change and adjustment to a new market economy. We synthesize and extend rather than elaborate existing theory on organizational transformation in transition economies which, to date, has been partial in applying transaction cost theory, institutional theory or the resource-based view (Estrin et al., 2009; Meyer and Peng, 2005; Wright et al., 2005). An important gap in the literature thus remains with respect to the interdependencies of different aspects and levels of organizational change processes. Theoretical frameworks have been proposed that integrate organizational learning and organizational...
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