The process of investing in capabilities

Catherine Ann Maritan, Purdue University

Abstract

This dissertation explores the processes by which firms make capital investment decisions that are associated with developing organizational capabilities. It argues that there can be an investment in an organizational capability embedded in a capital investment in a physical asset, and asks if and how the organizational process of investment varies with characteristics of the capability. The study builds on and extends previous research by investigating the investment process as a decision-level rather than a firm-level construct, and introducing a resource-based lens to the issue. A framework was developed to classify investments in capabilities in terms of the uncertainty, organizational complexity, and competitive context associated with the investment. The research question was empirically investigated through a 29-case, in-depth, field study of investments in six divisions of a Fortune 500 paper company. The process used to make each investment decision was retrospectively reconstructed based on document analysis and interviews. Evidence was found to support a contingency model of the capital investment process based on the degree of uncertainty associated with the investment. There were too few observations of some categories of investments to draw strong conclusions about the effects of organizational complexity or competitive context on the investment process. Investments in new capabilities which are associated with a high degree of uncertainty, were found to follow a markedly different decision process than investments in existing capabilities which are associated with less uncertainty. The finding of multiple processes in the same firm supports the notion of the capital investment process as a decision-level, not a firm-level, construct and suggests that existing investment process models are incomplete. The results also provide insights into capital investment as a mechanism by which operating-level capabilities are developed, and suggest that the capital investment process itself may be developed as a higher-level organizational capability.

Degree

Ph.D.

Advisors

Schendel, Purdue University.

Subject Area

Management|Finance

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