THE MODERATING ROLE OF ENVIRONMENTAL INTERPRETATION BETWEEN DYNAMIC CAPABILITIES AND FIRM CONTINUOUS IMPROVEMENTS

Abstract

The interpretation of managers of environmental changes helps in identifying the gaps between the environment and a firm’s capabilities. This in turn can support a firm’s ability to use dynamic capabilities in an effective way to reconfigure the firm’s resources into new operational capabilities that better match the environment and to exploit environmental opportunities. However, extant studies have ignored the moderating role of managers’ interpretation of environmental changes in the capabilities building paradigm. This study empirically examines the moderating role of environmental interpretation in the relationship between dynamic capabilities and improvement capabilities. To operationalise environmental interpretation to enable the development of a measurable model for this construct, which has yet to be developed, 209 large manufacturing firms were selected as a sample to study the relationship between environmental interpretation and firm’s capabilities. By applying the PLS-SEM technique, this study finds that environmental interpretation moderates the relationship between learning capability, integrating capability and coordinating capability and improvement capability.