Organizational Ambidexterity & Interlock Diversity:

Non-Executives In Their Resource-Providing Function

Author: Patrick van der Zwan

Student Number: 305424

Master Programme: Strategic Management

Coach: Dr. Mariano (Pitosh) Heyden II

Supervisor: Dr. Jathinder S. Sidhu

Co-reader: Dr. Koen Dittrich

Date: 31-05-2012

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Organizational Ambidexterity & Interlock Diversity:

Non-Executives In Their Resource-Providing Function

The copyright of the Master thesis rests with the author. The author is responsible for its

contents. RSM is only responsible for the educational coaching and cannot be held liable for

the content.

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Executive Summary

Due to the globalization and liberalization of financial markets, organizations are exposed

with an increasing dynamic business environment. The competitive landscape forces

organizations to the pursuit of both long and short term strategies. Organizations that are

adapt at managing both long and short term strategies are often called ambidextrous. The

present study explored important antecedents of organizational ambidexterity. An

ambidextrous organization is able to cope with the tensions between exploration and

exploitation and is therefore capable of simultaneously exploiting existing competencies and

exploring new opportunities (Raisch et. al, 2009). Research up till now remains rather

inconclusive and this lack in consensus regarding the antecedents and underlying constructs

of ambidexterity has led to the use of a variety of different measures to operationalize the

ambidexterity construct (Cao et. al, 2009). Drawing on the concepts of relational capital and

interlock diversity, this study focuses on a bundle of unique antecedents, which have not yet

been integrated in a conceptual framework.

Key in this paper is the notion that non executive directors play a vital role in influencing

corporate strategy formulation and performance. Building on previous theories about board

capital, I advance a model that captures the board’s ability to provide resources to a

organization. The concept of relational capital - ‘the sum of the actual and potential resources

embedded within, available through, and derived from, the network of relationships possessed

by an individual’ (Nahapiet and Goshal, 1998) – has been extended and a new dimension is

proposed: a quality dimension. In introducing this ‘relational capital quality’ concept, it is

asserted that the amount and quality of the information and resources directors provide access

to, depends on the actual quality of the organizations they have ties to. Furthermore, the

strategic context of these relationships is considered to be of influence on the process of

translating the critical knowhow gained from directorships into concrete advice and counsel.

Operationalized by the amount of related and unrelated directorships, the concept of interlock

diversity has been taken into account and its relationship with organizational ambidexterity is

tested.

By conducting a longitudinal analysis of a sample of 203 organizations, the author

investigated the hypothesized relation between relational capital quality, interlock diversity,

and organizational ambidexterity. As a stand-alone variable, relational capital quality has been

revealed not to be an antecedent of organizational ambidexterity. As a sub-component of the

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interlock diversity construct, the amount of unrelated directorships negatively affected the

concept of organizational ambidexterity. An interesting result, as it was hypothesized that the

amount of unrelated directorships would have a positive relationship with ambidexterity.

The most striking outcome of the study concerned the interaction effect of interlock diversity

on the relationship between relational capital quality and organizational ambidexterity. The

interaction effect resulted in a slightly positive relation between both variables, leading to

positive outcomes on the organizational ambidexterity construct. Whereas both variables

individually had a negative relationship with organizational ambidexterity, the combination of

both leads to synergy effects. In the quest for organizational ambidexterity, whether and by

how much the organization capitalizes on diverse opportunities, might be dependent on their

ability to create an optimal balance between relational capital quality and interlock diversity

Acknowledgements

The author thanks his supervisors, Jatinder S. Sidhu and Mariano (Pitosh) Heyden II, for

providing valuable and constructive comments during the master thesis trajectory. Their

suggestions and insights have been a true source of inspiration and have been very helpful for

improving this study. Furthermore, I want to thank co-reader Koen Dittrich for assisting me in

the final process of my thesis defense.

Declaration of originality

I hereby declare that the present master thesis is original and free from plagiarism.

Patrick van der Zwan

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Table of content

Executive Summary ................................................................................................................... 3

Acknowledgements .................................................................................................................... 4

Declaration of originality ........................................................................................................... 4

Organizational ambidexterity and interlock diversity: Non-executives in their resource

providing function. ..................................................................................................................... 7

Abstract ...................................................................................................................................... 7

Chapter 1 - Introduction ............................................................................................................ 7

1.1 Introduction ................................................................................................................. 7

1.2 Research objectives ..................................................................................................... 9

1.3 Contributions & Relevance ....................................................................................... 10

1.4 Research approach ..................................................................................................... 10

1.5 Thesis structure .......................................................................................................... 11

Chapter 2 – Theory .................................................................................................................. 11

2.1 Introduction ............................................................................................................... 11

2.2 Board capital .............................................................................................................. 13

2.2.1 Relational Capital Quality .................................................................................. 13

2.2.2 Interlock Diversity .............................................................................................. 15

2.3 Ambidexterity ............................................................................................................ 16

2.4 Relational Capital Quality, Interlock Diversity and Organizational Ambidexterity . 18

2.4.1 Relational Capital Quality and Organizational Ambidexterity .......................... 18

2.4.2 Interlock Diversity and Organizational Ambidexterity ...................................... 19

2.5 Conclusion ................................................................................................................. 21

Chapter 3 – Methodology ......................................................................................................... 22

3.1 Introduction ............................................................................................................... 22

3.2 Research Strategy ...................................................................................................... 22

3.3 Sample and Data Collection ...................................................................................... 22

3.4 Measurement ............................................................................................................. 23

Chapter 4 - Analyses and Results ............................................................................................. 26

4.1 Descriptives ............................................................................................................... 26

4.2 Analyses and results .................................................................................................. 28

Chapter 5 – Discussion and Conclusion .................................................................................. 32

5.1 Discussion of the results ............................................................................................ 32

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5.2 Contributions ............................................................................................................. 36

5.3 Future Research ......................................................................................................... 37

Conclusion ................................................................................................................................ 39

References ................................................................................................................................ 40

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Organizational ambidexterity and interlock diversity: Non-

executives in their resource providing function.

Abstract

Despite the broad range of disciplines involved in investigating the board of directors, there is

mixed evidence on the role the board of directors play in pursuing exploration and

exploitation strategies. These studies put forward different perspectives on the effect of board

capital on strategic change and corporate performance. Whereas relational capital has been

found to influence the process of strategic decision making, no theory has been developed that

takes into account the actual quality of board’s relational capital. In response to this disparity,

the paper’s key contribution lies in developing a more comprehensive theoretical model that

hypothesizes how the relational capital of the board can lead to different impacts on

organizational ambidexterity. Building upon resource dependence theory, it is submitted that

board ties to well-performing companies foster organizational ambidexterity. Moreover,

interlock diversity is recognized as a moderator of this relationship. The hypotheses are tested

in a longitudinal sample of 223 manufacturing firms operating in the Industrial Machinery

and Equipment industry (two-digit SIC code 35). Partial support is found for the effect of

relational capital quality on organizational ambidexterity, and support is found for the

moderating effect of interlock diversity.

Key words: ambidexterity, exploration, exploitation, board capital, relational capital quality,

interlock diversity.

Chapter 1 - Introduction

1.1 Introduction

Nowadays, organizations are faced with business environments in which the competition is

increasingly intensifying and the pace of change is accelerating (Jansen et. al, 2006). As a

consequence, organizations are required to be operating simultaneously for the short and the

long term. To gain competitive advantage, or even survive this competitive rivalry,

organizations must excel at both exploitative and explorative innovations (Andriopoulos and

Lewis, 2009). Existing literature already explored this seemingly paradoxal relation between

innovativess in the long run and efficiency in the short run (e.g. Gibson & Birkinshaw, 2004;

Levinthal & March, 1993). Ambidextrous organizations are capable of coping with the

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tensions between exploration and exploitation and thus are capable of simultaneously

exploiting existing competencies and exploring new opportunities (Raisch et. al, 2009)

As a counterpart of the above mentioned organizational pressure to perform in the short and

the long term, over the last decades the societal demand for accountability and transparency of

companies has been growing (Bezemer et. al, 2007). Corporate governance, referring to “the

system by which companies are directed and controlled” (Cadburry Committee, 1992), has

become crucially important. Attention has been devoted to the role of non-executive directors

in monitoring managerial intentions on behalf of shareholders and in providing additional

resources to the organization (Hillman and Dalziel, 2003).

Building upon the resource provision function, Haynes and Hillman (2010) recently

conducted research on the influence of the board of directors on strategic change. More

specifically, they focused on the construct of board capital, referring to the ability of the board

to provide resources to the organization (Hillman and Dalziel, 2003). Pfeffer and Salancik

(1978) introduced this function of boards and according to them an effective board has the

ability to provide advice and counsel to the organization on substantial matters such as

strategy formulation, access to information outside the organization, preferential access to

valuable resources through personal connections, skills and expertise and legitimacy.

A way organizations get access to valuable resources and absorb critical knowhow is to

capitalize on the relationships captured by their board of directors, also referred to as

relational capital. Key in theories on relational capital is the notion that board members

individually bring in relational capital to the board and that the amount and quality of their

relational capital is a function of their connectivity to outside groups and firms (Datta, 2011;

Simsek, 2009). Current theories have not yet focused on the actual quality of relational capita

sources: the companies directors have relations with. In other words, no qualitative distinction

is made in the relations of directors. What role does organizational performance play in the

exchange of relational capital? Do connections with better performing organizations lead to

qualitatively superior relational capital? Than how does this relational capital quality relate to

the pursuit of ambidextrous corporate strategies?

In addition to the discussion on relational capital, literature on board networks emphasizes the

importance of network diversity in realizing superior firm performance. (E.g. Simsek, 2009;

Datta, 2011; Wincent et al, 2010) Taking into account the ambidexterity topic of this paper,

these studies highlight the important role that diverse board connections play in the pursuit of

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exploitation and exploration strategies. What about the role of interlock diversity in the

creation of relational capital? Does interlock diversity lead to qualitatively superior relational

capital? And is the concept of interlock diversity also directly related to the pursuit of

organizational ambidexterity?

Whereas reasonable consensus exists on the merits of pursuing both exploitation and

exploration strategies (Jansen et. al, 2006), according to Simsek (2009) organizational

ambidexterity remains an under-theorized, under-conceptualized and, therefore, poorly

understood phenomenon. In bringing together the concepts of relational capital quality,

interlock diversity and organizational ambidexterity, this study contributes to the current field

of research and may be an important key in the puzzle, called “Ambidexterity”.

1.2 Research objectives

Due to the under explored nature of the relationship between relational capital quality and

organizational ambidexterity, there is a lack of conceptualization and theory on this topic.

Conducting this research serves both academic and managerial objectives. The academic

objective of my research is to contribute to the existing literature on networks, board capital

and organizational ambidexterity, by investigating whether a relation can be found between

relational capital quality and organizational ambidexterity. At this moment, there is a lack of

understanding what factors influence organizational ambidexterity and therefore this research

adds understanding to the various antecedents of organizational ambidexterity. Whereas the

current body of literature already elaborates on the role of executives (e.g. CEO and TMT),

much less is known about the role of non-executives in fostering organizational

ambidexterity.

Besides potential contributions to the ambidexterity literature, this research adds new insights

to the board capital literature as well. Scholars emphasize the constructs of human and

relational capital, without taking into account the actual quality of this board capital

dimensions. In doing so, it is currently assumed that the amount and quality of relational

capital directors bring in, is a function of their connectivity to outside groups. From this

assertion, the actual quality of the organizations they are connected with does not play any

role in this process. The present research focuses on the foundations of the relational capital

construct and introduces a new (quality) dimension. Moreover, the research will contribute to

the board capital literature, since current literature does not prove any relation between board

capital and the pursuit of exploration and exploitation.

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The main managerial objective of this research lies in the fact that over the last decades the

relative importance of and critique on the functioning of non-executive directors has been

growing. By conducting this research, new insights might be gained on the concept of board

capital in relation to the pursuit of exploration and exploitation. As such, the present research

provides insights for non-executives, executives and organizations as a whole. The

contributions of this research, might increase the ability of a board of directors to contribute to

organizational ambidexterity and thus to the creation of competitive advantage.

1.3 Contributions & Relevance

The academic objective of the present research is to contribute to various streams of literature

by investigating whether a relation can be found between relational capital quality and

interlock diversity on organizational ambidexterity. Currently insights are lacking on the

antecedents of organizational ambidexterity and the role that non-executive directors may

play in fostering ambidexterity. The results of this study may give a better understanding of

how directors are involved in the organization’s process of becoming ambidextrous. The

paper’s key contribution lies in developing a more comprehensive theoretical model that

hypothesizes how the relational capital of the board can lead to different impacts on

organizational ambidexterity. In doing so, a major contribution is made to current literature on

board capital.

The relevance of my research also lies in testing how interlock diversity interacts with the

concept of relational capital. The results give a better interpretation of the role director’s

relations play and how they manage this in combination with relational capital quality. The

findings of this research help highlight how boards can manage their network relations in such

a way that it is beneficial for the company as a whole.

1.4 Research approach

In order to measure the relationships conceptualized in the conceptual model, both

quantitative and qualitative research methods were used. Adopting a longitudinal approach,

data has been collected for 203 organizations in the period 2003-2007, comprising over 1700

directors. Qualitative data on organizational ambidexterity has been coded into quantitative

data using a computer-aided content analysis approach and theory. In doing this, both the

reliability and the ability to analyze the data gathered have been enhanced. The relational

capital quality construct has never been conceptualized before and scales for this new variable

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had to be developed. Qualitative data on board member directorships (companies board

members have ties to) has been coded into quantitative data by looking up the earnings per

share of each individual company.

1.5 Thesis structure

The present research will be structured in a particular way. In chapter one, I will introduce the

main research problem, objectives and contributions. Chapter two, the theory, will elaborate

on the first chapter by defining the concepts used in the study. This chapter brings together

the most prominent perspectives on relational capital, organizational ambidexterity and

interlock diversity. The concepts are being integrated in a conceptual model. The third chapter

will be about the methodology used to measure the effect of relational capital quality on

organizational ambidexterity. Moreover, the various variables and the sample group are

described in this chapter. In the fourth chapter, analysis and results, the main outcomes of the

quantitative study will be summarized. An empirical analysis will be conducted to explain the

outcomes in further detail. The fifth chapter will contain the discussion on the empirical

results. The chapter gives an indication of the limitations and elaborates on further

recommendations for future research.

Chapter 2 – Theory

2.1 Introduction

Recent corporate governance scandals such as Enron and WorldCom in the United States and

Ahold in the Netherlands, shocked the corporate world and got a lot of attention in both

business and popular press (Hooghiemstra and Van Manen, 2004; Bezemer et. al, 2007). Due

to the increased (negative) attention for corporate governance practices, corporate governance

frameworks were reformed globally and many countries introduced new corporate

governance codes. In response to corporate governance shocks, the USA introduced new

legislation and new listing rules. On 30 July 2002, the Sarbanes-Oxley Act became effective

(Linck et. al, 2008). The new legislation was designed to enhance corporate responsibility and

enhanced new standards for all U.S. public company boards, management and public

accounting organizations. (Sarbanes-Oxley Act of 2002, Public Law 107–204, U.S. Statutes at

Large 116 (2002): 745.)

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Characterized by a one-tier board system, executive and supervisory responsibilities are

united in one legal entity, the board of directors (Weimer and Pape, 1999). Whereas the

initiation and implementation of corporate decisions are the responsibility of the management

board (Maassen van Van den Bosch, 1999), traditionally, in its primary function, the board of

directors has a monitoring function. Non executive directors have the responsibility to

monitor managers on behalf of shareholders (Hillman et. al, 2008). The monitoring role finds

its grounds in the agency theory, which focuses on the potential conflicts of interest that arise

due to the separation of ownership and control. By applying an effective incentive system and

a suitable structure, effective governance practices are promoted and stimulated (Kor and

Sundaramurthy, 2009). Agency theorists thus emphasize the responsibilities and duties of

non-executive directors to ensure that managers are acting in the interests of shareholders

(Hillman and Dalziel, 2003).

Prior research on board functioning, suggests a second important board function: the

provision of resources. Drawing upon work of Pfeffer and Salancik (1978) on the resource

dependence theory, in its resource provision function, the board provides advice and counsel

to the organization on substantial matters, access to information outside the organization,

access to valuable resources through personal connections, skills, expertise and legitimacy

(Haynes and Hillman, 2010). In their review on the literature of the resource dependency

theory, Hillman, Withers and Collins (2009) emphasize the applicability of this theory in

understanding board functioning. As they conclude: “strong support exists for Pfeffer and

Salancik’s (1978) assertions that boards can manage environmental dependencies and should

reflect environmental needs.”

As shown in the research conducted by Carpenter and Westphal (2001), agency assumptions

on outside director’s knowledge ability and competence to fulfill their tasks became under

question. Their research yielded significant empirical support for the notion that the

monitoring and advising behavior of non-executive directors depends on the strategic

perspective and base of expertise and thus that boards may vary in their ability to perform

their tasks. A new stream of research is devoted to explain the variations in director’s

contributions to the board and pay significant attention to their human and relational capital

(Certo, 2003; Hillman and Dalziel, 2003; Hillman 2005).

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2.2 Board capital

Having a resource provision function, the board is perceived as a provider of resources, rather

than just an evaluator of management. The ability of the board to acquire and provide

resources, by Hillman and Dalziel (2003) referred to as ‘board capital’, has already been

extensively researched by resource dependence scholars (Hillman, Cannella and Paetzold,

2000; Pfeffer and Salancik, 1978). Building upon the work of Pfeffer and Salancik (1978)

who defined concrete resource provision functions for directors, Hillman and Dalziel (2003)

assert that board capital is the composite of individual director’s human and relational capital.

Generally, it is assumed that “boards help accessing strategically important resources and

manage external dependencies by linking the organization to the outside environment and by

providing resources that increase various aspects of performance (Wincent, Anokhin and

Örtqvist, 2010). Hence, outside (non-executive) directors are key players in setting corporate

governance strategy and strategic decision making (Finkelstein and Mooney, 2003).

Importantly though, for organizations to minimize transaction costs and maximize board

member’s resource acquisition potential fully, the composition of the board should reflect the

organizational dependencies so that the human and relational capital of the board enable the

organization to obtain its critical resources.

2.2.1 Relational Capital Quality

Being one of the two components of the board capital construct, relational capital refers to

‘the sum of the actual and potential resources embedded within, available through, and

derived from, the network of relationships possessed by an individual (Nahapiet and Goshal,

1998). As emphasized by Wincent, Anokhin and Örtqvist (2010), various advantages are

available through a board’s relational capital, including critical knowhow (Kale et. al, 2000),

complementary skills (Eisenhardt and Schoonhoven, 1996) and access to and information

about innovative endeavors (Biemans, 1991). In the context of board functioning relational

capital refers to both the ties held by directors and the assets the board can obtain and

mobilize through those ties.

Despite the knowledge and information benefits of relational capital, extant literature suggests

that there are costs associated with the generation of it and that it may become an impediment

to organization functioning. (Oh et al, 2006) As emphasized by Carpenter and Westphal

(2001), serving on several boards can take a toll on outside director’s limited time and

attention. To fulfill their advisory and governance duties effectively, directors should have a

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fine-grained view of the organizational strategic and governance issues (Carter and Lorsch,

2004). As such, serving multiple boards may harm directors’ contributions to a particular

board in a way that the organizational competitiveness and ability to generate growth can be

dampened by the lack of proper advising and governance by directors. (Conger et al, 2001)

Focusing on the ideas of relational capital, no distinction is made in the actual quality of the

information and resources directors bring in to the board. Theories assert that directors who

are broadly connected to outside groups will have greater relational capital (e.g Datta, 2011;

Simsek, 2009). Therefore, the resources made available through these relationships are

considered to be relevant and of high quality, thereby increasing the board’s relational capital.

(Certo et al, 2001) Scholars already emphasized that the strength of the relationship may have

some drawbacks on the innovative performance of the focal organization. Suggested is that

strong relationships may restrict one’s flexibility (Dakhli and De Clercq, 2001), make the

organization dependent on the actors one is linked to (Bruce and Rodgus, 1991) and hinder

responding to emerging opportunities (Florida et al, 2002). Extending this view, the actual

quality of the information and resources that directors bring in to the board, may as well be

dependent on the organizational performance of the firms the director has ties to: the actual

sources of this relational capital.

Organizations are heterogeneous in their resources and capabilities (Barney, 1991). The

strategic choices on how and where they use them, determines to a great extend how they

actually perform (Richard et al, 2009). In this sense, relationships with superior performing

organizations can be expected to provide more access to timely information, diverse ideas,

and critical political, instrumental and emotional resources, than relationships with poorly

performing organizations. Directors will therefore not only bring in more resources when they

are connected to better performing organizations, the quality of the information and resources

they provide access to will also be of greater quality and relevance for the focal firm. Taken

together, this would imply that connecting to superior performing organizations will increase

the quality of relational capital. The core proposition put forward is that connecting to better

performing organizations will increase the organization’s ability to manage the often

contradictory tensions of balancing exploration and exploitation.

Organizational performance is one of the most important constructs in management research.

Within strategy research, financial market-based measures are the preferred instrument for

characterizing organizational performance, because they are forward looking and represent

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the discounted present value of future cash flows (Fisher and McGowan, 1983). Traditionally,

one of the few broadly adopted measures for organization value is the value of the earning-

per-share (net operating profit minus dividends paid to preference shares divided by the

number of common stocks issued).

From a relational capital point of view, it can be argued that the quality of the information and

resources directors provide access to, is a function of the organizational performance of the

organizations they are connected to. The superior performing firms are assumed to generate

higher earnings per share and possess more valuable resources and information. Besides, they

provide better advice and counsel on organizational problems and potential solutions.

Although a lot of research has been devoted on the importance and consequences of external

networks, a shared language containing valid meanings has not yet been developed. (Provan

et al, 2007) A new stream of literature has been developed examining how the strategic

context of the social network affects effective board functioning. (e.g. Carpenter and

Westphal, 2001; Datta, 2011, Simsek, 2009)

2.2.2 Interlock Diversity

Key in the discussion on the strategic context of social networks is the concept of network

diversity. Although network diversity has been conceptualized in various ways, the formation

of interlocking directorships is of crucial interest in these studies. (Simsek, 2009; Datta, 2011)

The concept of board interlocks has gained a lot of attention over the last years. A board

interlock is created between organizations when an executive or director at one organization

joins the board of another organization (Burt, 1980). Linking this dimension of board capital

to the resource provision functions proposed by Pfeffer and Salancik (1978), board interlocks

are a way to manage environmental uncertainty, gain access to both skills and resources and

facilitate communication between and across organizations.

Important in the construct of interlock diversity is the notion of heterogeneity. As indicated by

Haynes and Hillman (2010), heterogeneous boards have more breadth of knowledge,

creativity and experiences, as well as more access to valuable resources outside the

organization. In addition, inspired by the work of Golden and Zajac (2001), Haynes and

Hillman (2010) found that an increase in interlock heterogeneity leads to more options acted

upon. Hence, interlock diversity concerns the flow of information and the extent to which this

information is similar or redundant. (Burt, 1992) Acquiring industry-specific information

from multiple sources through directors of the board, enables the organization to handle

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uncertainty effectively, by anticipating and responding to competitive moves and by gaining

superior knowledge of its competitors and industry opportunities and trends (Haynes and

Hillman, 2010).

2.3 Ambidexterity

The review on board literature clearly points out that board of directors play multiple (critical)

roles in organizations. Whereas the dominating perspective, the agency perspective, perceives

the board of director as a monitoring mechanism to ensure good organizational governance,

the current paper adopts a less explored view on board functioning. In the resource providing

role, the board of directors is viewed as a so-called ‘resource-vehicle’. The board of directors

has substantial influence on corporate strategy since organizations draw upon expertise and

guidance provided by the board of directors in setting corporate strategy (Goodstein, Gautam

and Boeker, 1994).

However, in business environments in which the competition is increasingly intensifying and

the pace of change is accelerating, setting a profound corporate strategy nowadays has

become a necessity. In order to be successful, an organization is increasingly required to be

operating simultaneously for both short and long term (Tushman & O’’Reilly, 1996, Jansen

et. al, 2006). The seemingly paradoxal relation between efficiency in the short run and

innovativeness in the long run has attained a lot attention of organizational researchers (e.g.

Gibson & Birkinshaw, 2004; Levinthal & March, 1993; Tushman & O‟ Reilly, 1996) and it is

referred to the pursuit of exploitation and exploration activities. Ambidextrous organizations

are capable of coping with the tensions between exploration and exploitation and are able to

simultaneously exploit existing competencies and explore new opportunities (Raisch et. al, 2009).

Raisch and Birkinshaw (2008) define ambidexterity as “an organization’s ability to be aligned

and efficient in its management of today’s business demands while simultaneously being adaptive

to changes in the environment”.

Building upon March’s article from 1991, the catalyst for the current interest in the concept of

ambidexterity, exploitation and exploration are two fundamental opposing learning activities

between which organizations divide their attention and resources. Whereas exploitation is

associated with activities such as “refinement, efficiency, selection, and implementation,”

exploration refers to notions such as “search, variation, experimentation, and discovery” (p.

102). However, as indicated by Gupta and Smith (2006) and emphasized by Cao, Gedajlovic

17

and Zhang (2009), whereas consensus consists on the importance ambidexterity, there is a lot

of ambiguity and disagreement on how this balance can be achieved.

On the one hand, the conceptualization of ambidexterity construct can be understood as

relating to a close balance of exploitation and exploration. In this view both activities compete

for resources (March, 1991). As Levinthal and March (1993) pointed out, the challenge is to

engage in sufficient exploitation to ensure current viability, while at the same time devote

enough energy and time to exploration to ensure future viability. Solely conducting

exploration activities, to the exclusion of exploitation, can be detrimental to the organization,

locking it into a cycle of undeveloped ideas, failure and search for new ideas (Gupta and

Smith, 2006). However, organizations that emphasize on exploitation activities, to the

exclusion of exploration, might lack the capability of adapting to future environmental

changes, which might endanger their success in the long run (Uotila et. al, 2009).

On the other hand, ambidexterity can be understood as relating the combined magnitude of

exploration and exploitation activities, corresponding to the view that both activities are

orthogonal (Gupta and Smith, 2006). Although the argument of scarce resources has generally

been supported in the current literature, this argument does not hold for all resources (e.g.

information and knowledge). Furthermore, the relationship between exploration and

exploitation depends much on the level of analysis. Whereas exploration and exploitation will

generally be mutually exclusive within a single domain, they will be orthogonal when studied

across different and loosely coupled domains. The present study very much build on March’s

(1991) exploration and exploitation concepts. As March originally posited it in his work, both

activities are conceptualized as two ends of continuum.

The context, in which organizational activities are categorized, plays an important role as well

in the quest for organizational ambidexterity. Current literature makes a separation in

structural and contextual ambidexterity. Whereas contextual ambidexterity focuses on the

simultaneous achievement of both exploitation and exploration at a business-unit level

(Gibson and Birkenshaw, 2004), structural ambidexterity separates both activities through

different mechanisms within the organization (Birkenshaw and Gibson, 2004). In the present

research, I will posit organizational ambidexterity as balancing high levels of exploration and

exploitation, rather than periodically switching between them. As Simsek (2009) puts it: “an

organization with low levels of exploration and exploitation is ‘balanced’, but not

ambidextrous.”

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Until now, three distinct sets of antecedents of organizational ambidexterity have been

advanced: dual structures, organizational context and TMT characteristics (Simsek, 2009).

The influence that the board of directors has on attaining organizational ambidexterity hasn’t

received any attention yet. In the following section, the adopted concepts will be brought

together and hypotheses will be explained.

2.4 Relational Capital Quality, Interlock Diversity and Organizational

Ambidexterity

Although both the concepts of relational capital and ambidexterity have been attracting a lot

of attention over the last several years, the relation between both concepts has never been

investigated yet. Whereas recent research already focused on the blended impact of the CEO

and the TMT on ambidexterity (Cao et. al, 2010), the role of the board of directors remains

underexplored. Building upon the resource provision function of boards, non-executive

directors are expected to influence organizational processes and strategic outcomes directly

(Haynes and Hillman, 2010). As emphasized by Pfeffer and Salancik (1978), a board member

is expected to support the organization and concern himself with its problems and try to aid it.

Directors have to make important strategic decisions and review and approve various strategic

plans. All these responsibilities are expected to have a severe impact on organizational

functioning (Carter and Lorsch, 2004). Stiles and Taylor (2001) argue that, due to their duties

and responsibilities, the board of directors has a ‘gatekeeping’ function. They propose that the

board of directors has significant decision power on strategic change proposals and resource

allocation decisions. Combined, the notion that the board of directors does have an influence

on organizational ambidexterity becomes plausible.

2.4.1 Relational Capital Quality and Organizational Ambidexterity

An extensive network of relations to superior performing organizations suggests that a board

has access to information of quality and potential value to the organization. (Collins and

Clark, 2003) As such, the board has better insights on the firm’s exploitative and explorative

needs and options. (Simsek et al, 2009) Therefore, they are able to properly mobilize

resources in support of ambidexterity pursuits. (Sparrawe et al, 2001) Directors linked to

well-performing organizations can be expected to have superior insights and ideas on how to

tackle seemingly contradictory strategic tensions and/or are likely to have successfully coped

with similar challenges in the past at other firms. Therefore, relational capital quality is

expected to have a positive relationship with organizational ambidexterity. This means that

19

when the quality of the network ties increases, organizational ambidexterity increases as well.

Thus:

Hypothesis 1: Relational capital quality has a positive relationship with organizational

ambidexterity

2.4.2 Interlock Diversity and Organizational Ambidexterity

Interlock diversity affords an organization multiple benefits from the perspectives of attaining

ambidexterity. (Datta 2011, Simsek, 2009) An organization with strategically related board

connections has little opportunity to consider multiple perspectives, because most network

members face the same organizational issues and have the same perspectives on these issues.

As Haynes and Hillman (2010) state: “The strategic actions recommended and approved by

the board will thus compel the organization to take strategic actions similar to the ones in the

industry, increasing the conformity to industry norms.” In contrast, diverse ties imply that

firms may differ in their problem-solving approaches. They have different modes of

reasoning, leading to other problem formulations and unique solutions. Exposure to these

different approaches might benefit organizations in its problem-solving arsenal. These

perspectives form the base of ambidexterity, as the organization builds on them in attaining

organizational ambidexterity. (Simsek, 2009).

Interlock diversity is also valuable for organizations in helping to overcome the problems

associated with the familiarity trap. (Ahuja and Lampert, 2001) This refers to the tendency or

organizations to favor the familiar over the unfamiliar. As a consequence, firms might be

inclined to search for solutions that are in the neighborhood of existing solutions rather than

search for completely new solutions. (Ahuja and Lampert, 2001; Simsek, 2009, Datta, 2011)

Low interlock diversity implies that a board has ties to the boards of other companies that

follow similar corporate strategies and operate in similar product-market and international-

market contexts. (Carpenter and Westphal, 2001) Based on this, more ties to companies that

are strategically unrelated enable the organization to access a wider scope of information

about potential markets, business opportunities, innovations, sources of capital and potential

customers.

The above discussion leads to the notion that interlock diversity has a positive influence on

organizational ambidexterity. Although the advantages gained will be critically shaped by the

organization’s ability to avoid the potential downsides (Simsek, 2009), it is emphasized here

20

that organizations are likely to achieve interlock diversity without suffering network overload.

Thus:

Hypothesis 2a: The amount of unrelated directorships has a positive relationship with

organizational ambidexterity.

Hypothesis 2b: The amount of related directorships has a negative relationship with

organizational ambidexterity.

While I submit that interlock diversity has a direct effect on organizational ambidexterity, it is

also expected to moderate the relationship between relational capital quality and

organizational ambidexterity. Director’s ties to companies that are strategically unrelated to

the strategy of the focal firm enable a firm to access new perceptions and beliefs about

various aspects of strategic decision making (Haynes and Hillman, 2010) and deviates the

strategy from industry norms (Geletkanycz and Hambrick, 1997). On the other hand,

relationships to companies that are strategically related to the firm stimulate strategic

conformity to industry norms. (Burrell and Morgan, 1979).

Integrating this theory of interlock diversity with the relational capital quality concept, it is

possessed that connecting with qualitatively better performing companies will have a positive

effect on actual quality of relational capital. Hence, these companies possess more valuable

resources and information and provide better advice and counsel on organizational problems

and potential solutions. Important here, is the notion that relational capital quality and

interlock diversity doesn’t exclude one and another. Better performing organizations might be

either strategically related or unrelated. Taking into account the benefits of interlock diversity,

relationships with better performing organizations that are strategically unrelated would

therefore maximize the potential benefits for the focal organization in gaining information and

resources of quality and potential value to the organization. In this sense, lower interlock

diversity would hamper the benefits gained from connecting with qualitatively better

performing companies and as such have a negative effect on the level of ambidexterity. It

would be important for organizations to combine both aspects of director’s relationships in

order to realize maximum relational capital quality and attain organizational ambidexterity.

Interlock diversity can therefore be seen as moderator in de relationship between relational

capital quality and organizational ambidexterity. Thus:

21

Hypothesis 3a: The amount of unrelated directorships positively moderates the

relationship between relational capital quality and organizational ambidexterity.

Hypothesis 3b: The amount of related directorships negatively moderates the

relationship between relational capital quality and organizational ambidexterity.

The concepts of relational capital quality, interlock diversity and organizational ambidexterity

could be connected to each other according to the conceptual model below, see figure 1.

Figure 1 Conceptual framework

2.5 Conclusion

The current chapter provided the most prominent literature relevant for the present paper and

a new theory on relational capital quality has been developed. It was hypothesized that the

concept of relational capital quality has a positive influence on organizational ambidexterity.

This means that it is beneficial for companies to have relations with superior performing

firms. These interlocks allow the board to access information of quality and potential value to

Interlock diversity

Amount of unrelated

directorships

H1

H2b

H2a

H3b

H3a

Organizational

Ambidexterity

Amount of related

directorships

Relational Capital

Quality

22

the focal firm. As such, the board has better insights on the organization’s exploitative and

explorative needs and options, so that they can properly mobilize resources in support of

ambidexterity pursuits. Subsequently, it was hypothesized that interlock diversity would have

both a direct and a moderating effect on the level of ambidexterity attained. Multiple

perspectives have been set out and were integrated in a conceptual model. The next chapter

provides an overview of how the conceptual model has been operationalized and translated

into methods to measure the various relationships.

Chapter 3 – Methodology

3.1 Introduction

In order to test the statements hypothesized earlier, this chapter will give an in-depth

elaboration on the research methods adopted. The research strategy will be explained and a

description will be given of the sample used and data collection method. Furthermore, an in-

depth discussion on the study’s main variables is included.

3.2 Research Strategy

The hypotheses were tested in a five year longitudinal study focusing on the potential effects

of board capital quality on organizational ambidexterity. For the purposes of the present

research I have chosen to conduct a desk research in which both qualitative and quantitative

research methods have been adopted. The conceptual model for the research introduces rather

new concepts to the board capital literature. Whereas board capital theory has already been

widely researched (Hillman and Dalziel, 2003; Wincent et al, 2010; Haynes and Hillman

2010), the concept of board capital quality remains rather underexplored. In order to draw

conclusions on the relationships and contribute to the existing stream of literature, the study is

conducted in a quantitative manner. Qualitative data on relational capital and organizational

ambidexterity has been coded into quantitative data using existing scales and theory. In doing

so, both the reliability and the ability to analyze the data gathered has been enhanced.

3.3 Sample and Data Collection

Prior research on board functioning has already emphasized that it is important to conduct

research on the ‘group’-level of analysis, rather than focusing on individual directors (Kor and

Sundaramurthy, 2009). Individually, an outside director might not be able to fulfill its

advisory and governance needs properly. However, by bringing together multiple

23

complementary skills, knowledge and connections, it is the bundling of individuals that has

the potential to result in high quality performance (Conger, Lawler and Finegold, 2001).

Whereas several scholars call for an ‘individual director’-approach in explaining board

functioning and effectiveness (Zahra and Pearce, 1989; Finkelstein and Hambrick, 1996;

Hillman et. al, 2008), the present study focuses specifically on the collective ability of the

board of directors to provide advice to the management board and conceptualizes board

capital as a group-level construct.

The dataset to test the hypotheses consists of a true sample of 223 manufacturing

organizations operating in the Industrial Machinery and Equipment industry (two-digit SIC

code 35). 20 organizations were dropped due to missing data, resulting in a final dataset

composed of 203 organizations, representing 30 industries at the four digit Standard Industrial

Classification (SIC) code level. The longitudinal data on interlock diversity were collected

from secondary sources such as initial registration statements, proxy statements, company

websites and other business press (Kor and Sundaramurthy, 2009). Quantitative data on

relational capital quality are extracted from Compustat files. The first step in this data

collection procedure involved clarifying on the directorships each director held during the

time horizon of the research (2003 – 2007) and the industry codes of these company (SIC).

Using these SIC codes, CompuStat files have been collected in which information was

included on the organizational performance of these companies (market capitalization,

earnings per share [EPS] and earnings before interest taxes and appreciation [EBITDA]).

After correcting for missing data, EPS values has been used as a operationalization for

relational capital quality.

3.4 Measurement

Adopting a longitudinal desk research, data has been collected for 203 organizations whose

boards are composed of over 1700 individual board members. Not only the concept of

relational capital is rather new to the board capital literature, moreover the concept has never

been linked to organizational ambidexterity. Whereas the conceptualization of the relational

capital construct is in line with research of Haynes and Hillman (2010) and Dalziel et. al

(2011), previous studies do not provide an empirically tested operationalization for relational

capital quality. Prior to the creation of the interaction and stand-alone effects, the independent

variables were mean centered to reduce multicollinearity (Aiken & West, 1991). To examine

multicollinearity, I have calculated the variance inflation factors (VIF) for each of the

24

regression equations. The maximum VIF within the models was 2.850, which is well below

the rule-of-thumb cut-off of 10 indicated by Neter et al. (1990).

Dependent variable

Organizational Ambidexterity

Ambidexterity refers to a firm’s pursuit of both exploration and exploitation with equal

dexterity. (Cao et al., 2010) The method used to measure the amounts of exploitation and

exploration was a content analysis of the organizations’ annual reports over the period of

investigation. Using the content analysis program QSR NVivo 8.0, annual reports were

uploaded and a list of exploration related items and a list of exploitation related items was

created. This way of measuring the level of exploration and exploitation has been used in

previous research by Uotila et al. (2009), who have made a list of exploration and exploitation

related words based on the description of those terms by March in his influential work on

organizational learning from 1991.

The program QSR NVivo analyzed the uploaded annual reports based on these two lists and

delivered six different outcome variables. The first and second outcome variable it provided

was one with the total number of exploration related terms and one with a total number of

exploitation related terms found per company per year (so in fact per annual report uploaded).

For the purpose of the present study, these represent the most important and relevant items.

The third and fourth outcome variable represented the same, but in this case stated as a

percentage of the total amount of words in the annual reports. So those outcome variables

reported on the percentage of the total number of words that were related to either exploration

or exploitation. The fifth and sixth outcome variable represented the ratio of exploration terms

over the sum of exploration and exploitation terms in both actual counted terms (outcome

variable 5) and in percentages (outcome variable 6).

In keeping with research of Lubatkin et al. (2006), the additive model is used to create the

ambidexterity measure out of exploration and exploitation. Ambidexterity is modeled as the

simple sum of the items associated with both exploitation and exploration. Reason for this, is

that they empirically concluded that the additive model contains the least information loss in

aggregating exploration and exploitation into a single latent factor of ambidexterity (Simsek

et al., 2010)

25

Independent and moderating variables.

Relational Capital Quality

Indicators for this dimension are the total numbers of outside board seats board members

possess and the quality of each relation, indicated by the earnings per share of the

organization a director is connected to. Hence, the total amount of relational capital is a

function of both the quantity and quality of outside directorships. Director’s membership on

multiple boards (Kor and Sundaramurthy, 2009) serves as a proxy for outside director’s

relational capital, because current board ties can be leveraged to access information and

resources.

Generally, earnings per share are considered to be an important variable in determining

organization’s share price, which is a key indicator for profitability (Richard et al, 2009).

Firm profitability and performance are strongly related concepts and both give a clear

indication of the quality of an organization. As the quality dimension is a sub-dimension of

the already widely researched relational capital construct, the study very much builds upon

previous research.

In keeping with the research of Simsek (2009), Interlock diversity is expected to act as a

moderating variable. In doing so, the concept refers to the number of different social systems

the organization’s relations stems from. Depending on the strategic contingencies the

organization faces, having (un)related ties can help a focal firm in assessing critical

information and knowledge and adopting resources that contribute in the quest for

organizational ambidexterity. The concept of interlock diversity is composed of two

dimensions: the amount of related directorships and the amount of unrelated directorships.

The measure of relatedness adopted in the present research is in line with the method used by

Carpenter and Westphal (2001). The amount of related directorships is measured as the

number of board appointments to the board of companies in a primary business similar

(having the same three-digit Standard Industrial Classification [SIC] code) to that of the focal

organization. The amount of unrelated directorships is measured as the number of board

appointments to the board of companies in a primary business dissimilar (having another

three-digit Standard Industrial Classification [SIC] code) to that of the focal organization

26

Control Variables

The present research controls for possible confounding effects stemming from both the

internal organization and the external organizational environment. Drawing from the results

conducted by Haynes and Hillman (2010), board size (the number of directors) and the

average age of directors are included in the model. They have found that the average age of a

director predicts the board’s ability to influence the firm’s strategy. Variables relating to

board dynamics, including chair duality, using a binary variable; and board tenure, measured

as the mean of director’s tenure on the focal company’s board were also included since they

may affect the independent and dependent variables. Furthermore, Industry-Adjusted Return

on Assets, calculated at 3 digit SIC based on EBITDA, is included as a control variable.

Previous empirical findings indicate that organizational performance is significantly related to

strategic change. (Mintzberg, 1978) Prior firm performance may influence the fund available

for R&D. At the firm level, I controlled for firm size (log total assets) and R&D intensity

(R&D/Sales), since previous studies asserted that these factors significantly influence firm’s

exploitative and explorative pursuits. (Dalziel et. al, 2011)

Chapter 4 - Analyses and Results

4.1 Descriptives

In order to quantify the conceptual model adopted in the present research, this chapter

contains the analyses performed and the results that flow from this research approach. In

table 4.1 an overview is presented of the descriptives and correlations for the variables

included in the study. In total 871 observations are included, covering over 200 organizations

over a time horizon of three to five years. On average the boards in the sample were

composed of seven members. Analysis shows that the average age of a board member is 58.5

years and the average board tenure of a director is 8.9 years. Based on a 3-digit Standard

Industrial Classification (SIC) code, The Computer & Office Equipment industry was most

strongly represented in the sample group (43%). Other industry sectors that were strongly

represented were the Special Industry Machinery (18%), Construction, Mining, Materials

Handling (14%) and General Industry Machinery & Equipment (13%).

27

Table 4.1 Means, Standard Deviations and Correlations

M

ean

Std.

Dev

iati

on1

23

45

67

89

1011

12

1.A

mbi

dext

erit

y0,35

0,11

-

2.R

elat

iona

l cap

ital

qua

lity

2,63

30,60

.014

-

3.R

elat

ed d

irec

tors

hips

(3 d

igit

)

0,14

0,27

-.039

-.056

-

4.U

nrel

ated

dir

ecto

rshi

ps

(3 d

igit

)

2,26

0,85

-.060.120**

-.075*

-

5.F

irm

siz

e (l

og t

otal

asse

ts)

2,58

0,92

.022

.052

.013

.205**

-

6.R

&D

inte

nsit

y0,30

2,12

.010

-.017

.008

-.031-.192**

-

7.C

hair

dua

lity

0,78

0,42

-.066*

.013

-.015

-.021

.053

.047

-

8.In

dust

ry a

djus

ted

RO

A0,02

0,36

.033

.029

-.021

.082*

.395**

-.491**-.056

-

9.bo

ards

ize_

log

0,87

0,15

.034

.118**

-.055.171**

.589**

-.018

.080*

.220**

-

10.

Boa

rd t

enur

e_m

ean

8,96

23,00

.001

-.009

-.041

-.069*

-.107**

.008

-.007-.130**-.101**

-

11.

boar

d ag

e_m

ean

58,51

6,44

-.067*

.062

-.027.115**

-.114**

.001

-.078*

-.011

-.081*

.115**

-

12C

ompu

ter

& O

ffic

e

Equ

ipm

ent

(ref

eren

ce

grou

p)

0,43

0,50

-.025

-.075*

.357**

.030

-.114**.088**

-.002-.195**-.126**.007

-.265**

-

*. C

orre

latio

n is

sig

nific

ant a

t the

0.0

5 le

vel (

2-ta

iled)

.

**. C

orre

latio

n is

sig

nific

ant a

t the

0.0

1 le

vel (

2-ta

iled)

.

28

4.2 Analyses and results

Table 4.2 presents the results for the multiple hierarchical regression analysis for the control

variables, (un)dependent and interaction variables. The first model contains the relevant

control variables chosen for this particular study. In keeping with previous research on board

capital (e.g. Haynes and Hillman, 2010), I have controlled for confounding effects stemming

for both the internal organization and the external organizational environment. Relevant

control variables include R&D Intensity, Organization Size, Industry Adjusted Return on

Assets, Chair Duality, Board Size, Board Age and Board Tenure. Of all control variables,

chair duality and board age have a significant negative relation with organizational

ambidexterity (β= -0.089, p= 0.034 ; β = -0.076, p= 0.041).

Model two adds in the effect of relational capital quality, the main independent variable. In

doing this, the model captures the research object and was used to test the main effects. The

direct effect of interlock diversity on organizational ambidexterity is measured in model 3.

Model 4 takes into account the interaction effects of the moderating variables. The relatedness

of the outside directorship is expected to moderate the relation between relational capital

quality and organizational ambidexterity

The first hypothesis (H1) tests the main effect of relational capital quality on organizational

ambidexterity. As indicated in model two in table 4.2, the coefficient for this relation is

positive (β = 0.017), though insignificant (p = 0.630). Although there seems to be a positive

relation between the variables, based on these results it is not supported that the level

organizational ambidexterity will grow when the quality of relational capital increases. Hence,

Hypothesis 1 is not supported.

Regarding the effect of interlock diversity on organizational ambidexterity, model three

shows that the coefficient for the amount of related directorships is negative and insignificant

(β= -0.041, p= 0.278), thus not supporting Hypothesis 2(b). Furthermore, the coefficient for

the amount of unrelated directorships is negative and significant (β= -0.065, p= 0.075) and

thus not supporting Hypothesis 2(a). Overall, these findings indicate that strategically

unrelated directorships captured by the board have a negative effect on the level of

ambidexterity of the focal organization. This would mean that the involvement of directors on

other boards that are not strategically related diminishes their ability to contribute to the

strategy of the focal organization. The amount of related directorships does not have a

significant impact in fostering organizational ambidexterity.

29

The interaction effects of having strategically related and unrelated directorships on the

relation between relational capital quality and organizational ambidexterity are shown in

model four. The moderating effect of related directorships on relational capital quality is not

significant (β= -0.023, p= 0.605) and therefore not existing. However, the moderating effect

of the amount of unrelated directorships seems to be positive and significant (β= 0.160, p=

0.005).= and thus in support of Hypothesis 3a.

The results indicate that interlock diversity weakens the negative effect of relational capital

quality on organizational ambidexterity. Hence, when the board has relations with superior

performing firms, organizational ambidexterity is fostered when the amount of unrelated ties

is high. These unrelated interlocks are better sources of timely and relevant information and

contribute in attaining ambidexterity.

The interaction plot of relational capital quality with interlock diversity is presented by Figure

4.1. To plot this interaction, the value of minus one (low unrelated directorships) and one

(high unrelated directorships) were adopted in this model. It can be seen that the negative

influence of relational capital quality is positively moderated by a high amount of unrelated

directorships. It appears that having more unrelated directorships changes the nature of the

relation between relational capital quality and organizational ambidexterity. The interaction

effect results in a slightly positive relation between both variables, leading to positive

outcomes on the organizational ambidexterity construct. Whereas both variables individually

have a negative effect on organizational ambidexterity, the combination of relational capital

quality and interlock diversity leads to positive outcomes. Also the moderating impact of low

interlock diversity is clearly illustrated by this figure. It seems that low unrelated directorships

have a decreasing effect on relational capital quality.

30

Figure 4.1 The moderating effect of Interlock Diversity on Relational Capital Quality

Important in analyzing this interaction plot, is the notion that the relative moderating impact

of interlock diversity seems to be a function of relational capital quality. In case of having low

relational capital quality, organizational ambidexterity is enhanced when the firm has low

unrelated directorships. As opposed, high relational capital quality leads to more

organizational ambidexterity when the board of directors has many ties to strategically

unrelated companies.

1

1.5

2

2.5

3

3.5

4

4.5

5

Low Relational Capital

Quality

High Relational Capital

Quality

Org

an

izati

on

al A

mb

idex

teri

ty

Low Unrelated

Directorships

High Unrelated

Directorships

31

Table 4.2 Results of Hierarchical Regression Analyses: Effects on Organizational

Ambidexterity and interaction effects of Interlock Diversity

Ambidexterity

Model 1 Model 2 Model 3 Model 4

Firm size -0.018 -0.018 -0.005 -0.004

R&D intensity 0.038 0.038 0.038 0.040

Chair duality -0.890* -0.090* -0.098* -0.108*

Industry adjusted ROA 0.040 0.040 0.042 0.043

Board size 0.034 0.032 0.036 0.031

Board tenure 0.016 0.016 0.010 0.010

Board age -0.076* -0.077* -0.062* -0.065*

Relational capital quality (H1) 0.017 0.023 -0.116

Amount of unrelated

directorships (H2a)

-0.065+ -0.063+

Amount of related directorships

(H2b)

-0.041 -0.043

Amount of unrelated

directorships * Relational

capital quality (H3a)

0.160**

Amount of related directorships

* Relational capital quality

(H3b)

-0.023

R² 0.021 0.021 0.026 0.036

Δ R² 0.000 0.005 0.010*

Note, Standardized regression coefficients are reported,

*** p < 0,001, ** p < 0,01, * p < 0,05, + p < 0,1

32

Table 4.3 Results

Hypothesis Results

1. Relational Capital Quality has a positive

relationship with organizational

ambidexterity.

Not confirmed

Relational Capital Quality:

(β= 0.017; p= 0.630)

2a. The amount of unrelated directorships

has a positive relationship with

organizational ambidexterity.

Not confirmed

The amount of unrelated directorships:

(β= -0.065, p= 0.075)

Negative effect

2b. The amount of related directorships has a

negative relationship with organizational

ambidexterity.

Not confirmed

The amount of related directorships:

(β= -0.041, p= 0.278)

3a. The amount of unrelated directorships

positively moderates the relationship

between relational capital quality and

organizational ambidexterity.

Confirmed

The amount of unrelated directorships:

(β= 0.160, p= 0.005),

Positive moderating effect

3b. The amount of related directorships

negatively moderates the relationship

between relational capital quality and

organizational ambidexterity.

Not confirmed

The amount of related directorships:

(β= -0.023, p= 0.605)

Chapter 5 – Discussion and Conclusion

5.1 Discussion of the results

While a number of research studies have already advanced the concept of board capital (e.g.

Haynes and Hillman, 2010; Kor and Sundaramurthy, 2008), the present research takes a more

comprehensive approach and focuses on the actual quality of this board capital and the effects

on organizational ambidexterity. Drawing from the resource dependence theory, the study

posits that the amount and quality of relational capital, depends on the quality of the

organizations directors have ties to. Directors with ties to better performing companies are

expected to bring in more valuable and timely information and resources as opposed to

directors who are involved in the boards of organizations that perform relatively poor.

33

Directors linked to well-performing organizations can be expected to have superior insights

and ideas on how to tackle seemingly contradictory strategic tensions and/or are likely to have

successfully coped with similar challenges in the past at other firms.

Based on the analysis of statistical results, only one of the hypotheses was supported.

Whereas the main effect of relational capital quality seems to be non-existing in the dataset,

some interesting results can be seen. Especially the strategic context of interlocking

directorships appears to be an important factor in the process of becoming ambidextrous.

Interestingly, whereas the amount of related directorships does not significantly impact the

level of ambidexterity in any way, the amount of unrelated directorships seems to be of

critical value in fostering organizational ambidexterity. Analyzing the results from a practical

point of view, the current chapter elaborates on the results. Furthermore, the chapter provides

an overview of the contributions and limitations of the present research.

The research focused on the influence of relational capital quality on organizational

ambidexterity and the moderating impact that interlock diversity has on it. As already

emphasized, current literature does not provide an empirically tested operationalization of

relational capital quality. In building this new theory, I integrated the ideas of board capital

studies (Hilllam and Dalziel, 2003; Haynes and Hillman, 2010) network theories (Simsek,

2009; Datta, 2011; Wincent et al, 2010), and literature on organizational ambidexterity (e.g.

Benner & Tushman, 2003; Raisch et. al, 2009). In doing so, it was hypothesized that relational

capital quality would have a positive influence on the process of fostering organizational

ambidexterity. An extensive network of relations to better performing organizations suggests

that a board has access to information of quality and potential value to the organization.

(Collins and Clark, 2003) As such, the board has better insights of the organization’s

exploitative and explorative needs and options (Simsek et al, 2009), so that they can properly

mobilize resources in support of ambidexterity pursuits. (Sparrawe et al, 2001) The ability of

directors to gain access to relevant resources is viewed as depending upon their relationships

within the corporate network. Results however showed an insignificant (positive) relation,

indicating that the quality of the network does not have consequences for the level of

organizational ambidexterity. As an individual factor, the quality of relational capital does not

have any foundation. Obviously, improving the quality of the relations held by directors

doesn’t necessarily influence the quality of the resource and information streams gained in a

way that is it beneficial for ambidexterity pursuits.

34

Concerning the direct effect of interlock diversity, the results are twofold. The amount of

related directorships does not bear any relation to the level of organizational ambidexterity

attained. Based on the article by Datta (2011), it was hypothesized that high amounts of

related directorships would have a negative impact on the process of becoming ambidextrous.

In the situation of low interlock diversity, the board has little opportunities to consider

multiple perspectives and thus is likely to consider a narrower way of options and strategies.

(Haynes and Hillman, 2010). As Haynes and Hillman state: “The strategic actions

recommended and approved by the board will thus compel the organization to take strategic

actions similar to the ones in the industry, increasing the conformity to industry norms.” From

an ambidexterity-point-of-view, low interlock diversity may lead to a preference for the status

quo due to the success-trap. The strategic decisions of the board will reflect the dominant

strategy patterns of the industry.

Regarding the amount of unrelated directorships however, findings suggest a negative

influence on organizational ambidexterity. These findings are not consistent with previous

perspectives on the role of interlock diversity (e.g. Datta, 2011; Simsek, 2009). These studies

show that interlock diversity affords the organization multiple benefits from the perspectives

of attaining ambidexterity. Interlock diversity can be expected to have beneficial

consequences for an organization’s problem-solving arsenal. In doing so, diverse network ties

enforce firms to overcome problems associated with the familiarity and propinquity trap.

Based on these insights, it was hypothesized that higher amounts of unrelated directorships

would have a positive influence on the level of ambidexterity attained. The seemingly

negative relationship between interlock diversity and organizational ambidexterity can be

explained by the study of Katila and Ahuja (2002). They state that an increase in diversity

might dynamically increase costs of integrating streams of knowledge into the organization’s

current knowledge base, making it harder to exploit synergies across them. Reasoning from

this, an increase in interlock diversity may lead to a situation in which exploration drives out

exploitation due to low or inexistent pay-offs.

Most prominent outcome of this paper is the moderating effect of interlock diversity on the

relation between relational capital quality and organizational ambidexterity. Results showed

that this effect was positive, indicating the importance of interlock diversity captured by the

board of directors. High amounts of unrelated directorships help to overcome the seemingly

negative effects associated with high levels of relational capital quality. The following was

found concerning the interaction effect of interlock diversity. First, the findings suggest that

35

the moderating role of interlock diversity is twofold. Whereas strategically related

directorships do not seem to be an accurate proxy for interlock diversity, the regression

analysis indicates that having unrelated interlocks both directly and indirectly appears to be of

influence in the process of becoming ambidextrous. Initially, the quality of relational capital

does not bear any significant relationship with the amount of ambidexterity pursued. The

moderating influence of interlock diversity changes both the direction and significance of the

relation between relational capital quality and organizational ambidexterity.

Second, regarding the influence on the direction of the relation between the dependent and

independent variable, it appears that high interlock diversity has a positive influence on

organizational ambidexterity. Although positive, the moderating effect of high interlock

diversity is minimal compared to the negative moderating effect of low interlock diversity.

Therefore, the relative impact of interlock diversity seems to be a function of the quality of

relational capital captured by the board of directors. Board ties with well-performing firms

will only stimulate the pursuit of ambidextrous corporate strategies, when the amount of

unrelated directorships is high. Directorships in poorer performing companies will have a

positive influence on organizational ambidexterity when the quantity of unrelated board ties is

low. Altogether it can be concluded that the amount of unrelated directorships acts as a

substitute for the seemingly negative effects of relational capital quality.

Third, building on the abovementioned relative impact of interlock diversity, the results of the

present research clearly point to the direction of two distinct situations in which different

network structures lead to an optimal outcome on the ambidexterity construct. When a

organization is able to capture a high level of relational capital quality through its board of

directors, a higher level of organizational ambidexterity is realized when the amount of

unrelated directorships are high. At the other hand these findings imply that when the quality

of relational capital is low, diversity of interlocks held by directors plays a key role in

attaining organizational ambidexterity. It appears that low unrelated directorships lead to

positive outcomes on the ambidexterity level.

The resource-dependence lens adopted in this paper asserts that the need for environmental

linkages is a direct function of the levels and types of dependence facing an organization.

(Hillman et al., 2000) In order to secure competitive advantage, boards aim to provide scarce

resources and relationships. In doing so, directors fulfill a resource-providing function.

Obviously for firms in the sample, broader connectivity with key contacts, such as suppliers,

36

customers and competitors appears to have drawbacks for attaining ambidexterity. It appears

that diminishing returns will be realized, when the network size is too large. The large

quantities of information originating from diverse sources can overload an organization’s

information processing capacity. (Datta, 2011) Furthermore, due to their broad connectivity,

directors can spend limited amount of time and attention to the focal firm’s strategic issues.

All the above leads to the notion that having ties to superior performing contacts in business

environments other than the Industrial Machinery and Equipment industry, does the pursuit of

both exploration and exploitation strategies. It seems that inter-industry directorships only

lead to more ambidextrous strategies when the firms’ directors have ties to perform well.

From an ambidexterity point of view, board’s influence is most prominent when the firms

they provide access to are mostly intra-industry concentrated. Nonetheless, whether and by

how much the organization might capitalize on such diverse opportunities, might be

dependent on their ability to create an optimal balance between relational capital quality and

interlock diversity.

5.2 Contributions

Contributions to theory

Conducting this research served both academic and managerial objectives and contributed

both conceptually and empirically to existing literature. In doing so, results of this study

created deeper understanding of the ambidexterity construct and created insights on the

influence that relational capital quality has on it.

The conceptual contribution of the present research lies in the introduction and

operationalization of the relational capital quality construct. Despite the broad range of

disciplines involved in investigating the board of directors, up till now the concept of

relational capital quality remained under-explored. In response to this disparity, the paper’s

key contribution lies in developing a more comprehensive theoretical model that hypothesizes

how the relational capital of the board can lead to different impacts on organizational

ambidexterity.

Empirically, due to the longitudinal research design used and quantitative analysis adopted,

the study brings in new insights to current literature on exploration, exploitation and

ambidexterity by investigating whether a relation can be found between relational capital

quality and organizational ambidexterity. Currently, there is a lack of understanding what

37

factors influence organizational ambidexterity. Whereas current theories already elaborate on

the role of executives (e.g. CEO and TMT), much less is known of the role of non-executives

in creating an ambidexterity corporate climate. Therefore this research added understanding to

the various antecedents of organizational ambidexterity

Furthermore, the study contributes to the network theory by advancing the concept of

interlock diversity. Research on this matter (Simsek, 2009; Phelps, 2010; Datta, 2011),

positively connects the concept of interlock diversity with the pursuit of organizational

ambidexterity. This study showed that interlock diversity doesn’t necessarily enhance the

pursuit of organizational ambidexterity. An important contributing finding is the fact that the

amount of diverse board ties substitutes for the effects stemming from relational capital

quality. The amount of unrelated ties should thus be adjusted to the quality of relational

capital.

Contributions to management practice

The main managerial objective of this research lies in the fact that over the last decades the

relative importance of and critique on the functioning of non-executive directors has been

growing. By conducting this research, new insights have been gained on the concept of board

capital in relation to the pursuit of ambidexterity. As such, the present research provides

insights for non-executives, executives and organizations as a whole. The contributions of this

research, increase the ability of a board of directors to contribute to organizational

ambidexterity and thus to the creation of competitive advantage. Therefore, the research

might increase a organization’s ability to realize organizational ambidexterity.

The present findings showed that boards should focus on creating an ultimate balance

between relational capital quality and interlock diversity in composing their formation.

Especially when relational capital is gained from qualitatively poorer performing companies,

strategic relatedness appears to be a key concept in the quest of becoming ambidextrous.

5.3 Future Research

Whereas the research makes several contributions to the ambidexterity and board capital

literature, the study has limitations as well. First, the research is conducted in a longitudinal

design. Due to time and size boundaries, the quantitative study does have some

methodological limitations. The sample of 203 organizations might be too little to generalize

the findings. Moreover, as the research is only focusing on listed organizations, it neglects

38

small and medium sized organizations. Another methodological limitation can be found in the

use of secondary (hard) data. Whereas the data is publicly available and thus analyzable, it

doesn’t contain soft elements. These soft data might be fruitful to get a complete sense of the

conceptual outcomes of the present study.

Second, the present research basically builds on previous theories on board capital (Hillman

and Dalziel, 2003; Haynes and Hillman (2010). As they already mentioned, strategic change

as such may not represent the best context to examine effects of board capital breadth and

depth. Although this research focuses on the concepts of exploitation and exploration, by

Andriopoulos and Lewis (2009) referred to as necessary for gaining competitive advantage,

the research doesn’t directly focus on the board capital-performance relation as proposed by

Haynes and Hillman (2010). Future research could test the proposed relation with the

conceptual model developed in this study.

Third, to be able to develop the new theory on relational capital quality, new scales were

introduced. Existing theories did not provide any empirically tested operationalization of

relational capital quality. Hence, theories had to be developed based on the bundling of

empirical insights combined with personal perspectives. Future research can use these newly

developed dimensions and further develop them into a more established measurement.

Fourth, the study does not incorporate any soft elements in analyzing board’s contribution to

strategy. Based on the argument that the boards of directors are small groups, they are subject

to certain social and psychological influences (Petrovic, 2008). However these dynamics,

such as task/cognitive conflict, relationship conflict and board cohesiveness, do have

implications for the effectiveness of the board. Therefore, future research might incorporate

these softer elements of relational capital, since it is likely that these elements have an impact

on the quality of information sharing between board members (Simsek et al., 2009)

Fifth, as the present study focused on the relational aspect of the board capital construct, the

concept of human capital was excluded from this study. Whereas this focus on relational

capital helped to gain better insights on the role of director’s network on attaining

organizational ambidexterity, it might be interesting for future research to extend the present

research and include the quality of human capital as well. Bringing together both the quality

of human and relational capital in the pursuit for ambidexterity will ultimately generate a

complete understanding of director’s ability to contribute to the strategic repertoire of a focal

firm.

39

Conclusion

While there is general scholarly and managerial consensus that boards of directors play a vital

role in influencing firm performance by providing access to relevant resources and

knowledge, this article shows another perspective on the influence of directors. In developing

a more comprehensive theoretical model, this research highlights the important role that the

board of directors has in fostering organizational ambidexterity. Drawing from the ideas put

forward in the resource dependency theory, it is confirmed that board capital is an useful

resource for firms, with social ties providing the opportunity for firms to deviate from both

previous strategies and industry norms. In doing so, the research model refines when board

diversity can be beneficial and when it can become a threat in the quest for ambidexterity. In

the quest for organizational ambidexterity, whether and by how much the organization might

capitalize on diverse opportunities, might be dependent on their ability to create an optimal

balance between relational capital quality and interlock diversity. Both seem to be antecedents

of organizational ambidexterity and appear to be important concepts in facing modern world’s

challenges.

40

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