Mr Steven Fang, CEO, CordLife, Singapore

Aug 2010: The biotechnology industry is often referred to as the business of science; young and sexy, attracting the attention of both investors and researchers alike. However, underneath the shine is an industry often associated with failed returns and promises. The high failure and mortality rate has been the norm rather than the exception. The literature has attributed this failing to the unique nature of basic research into the unknown. Couple this with the need for biotechnology to build strong capabilities in research and commercialization, and you have a highly conflicted mix of explorative and exploitative conditions. In this explanatory study (Building sustainable competitive advantage through the paradox of dynamic capabilities: A biotechnology perspective), the key problem situation of biotechnology in building sustainable competitive advantage is brought to light.

The focus through dynamic capability and the phenomenon of capability paradox aptly reflects this problem situation. The literatures in dynamic capability have raised a number of interesting theoretical and conceptual frameworks that may hold managerial utility in transforming the mortality and sustainability rate of biotechnology. Key theories in dynamic capability and their applicability are discussed and debated in this research study. The outcome postulates that a countervailing dual process framework comes close to describing the problem situation in biotechnology.

Research Methodology
The study adopts an interpretive and qualitative research method to gather the appropriate rich data through a semi-structured interview of key stakeholders or actors. Drawing from a total of 23 interviews of research participants recruited from the biotechnology industry, these individuals bring a range of managerial experiences across key functional areas and with seven to 30 years of working experience individually. NVivo8 qualitative software was then used to organize the respective transcriptions. Through Thematic Network Analysis, the raw qualitative data is systematically grouped through a sense making process of determining basic themes, organizing themes and global themes.

About the nature of biotechnology
The issues and challenges of biotechnology can best be generalized through the following characteristics; complex development cycles, high environmental volatility and unpredictability, multiple capabilities throughout different development stages, and high failure rate due to its inability to transition or respond to strategic threats. These elements are important as they form the basis and direction to the organizing themes in this research study’s thematic analysis approach.

Multiple capabilities are embedded in Biotechnology
The first identifiable organizing theme holds evidence to suggest that multiple capabilities do exist throughout the different stages of biotechnology company cycles and that they tend to be embedded in the management process and structure. Furthermore, there are strong indications to suggest that many of the capabilities identified are significantly different in their organizational routines and nature. These observations also suggest the presence of capability paradox resulting from having to build multiple capabilities for biotechnology. In other words, biotechnology companies often have to build different organizational capabilities that are not derived from the same knowledge base and are often not compatible in their objectives. Capability paradox arise as a result of being overly successful in one set of capabilities so as to be a hindrance to the building of other necessary organizational
capabilities.

Capability paradox
The second identifiable organizing theme seems to take the previous organizing theme further to suggest that biotechnology firms are often plagued by capability paradox. The drivers and causes are easily identified and are often determinants of continuity and sustainability for many biotechnology companies. Such that the strengths of recursive capability based behavior in problem solving tends to become a barrier to adaptation and a burden to flexibility and change. In relation to this phenomenon, Schreyögg and KlieschEberl (2007) observed that organizational capabilities invert from strategic assets to become a strategic burden, and this is especially evident in volatile and dynamic environments where rules are changing the competitive game.

Another important conclusion from this organizing theme is that there is an inherent tendency for capabilities to persist that can build strategic assets, but this can also contribute towards inflexibilities that becomes a strategic treat. The implications to capability management in biotechnology companies are significant. The next logical step will be to confront the causes and drivers of capability paradox. This can be undertaken through the classical theories of dynamic capability. Taking the approach of refutable principle, constant comparative method and deviant approach, necessarily results in exploring the limitations of the theories of dynamic capability.

Limitations of classical theories of dynamic capability
In addressing capability paradox, the drivers of path dependency, structural inertia and commitment lead to the conception of dynamic capabilities. In building competitive advantage for biotechnology, the three classical theories of dynamic capabilities are considered; radical dynamization, integrative approach, and innovative routine approach.

This organizing theme concludes that the limitations of classic theories in dynamic capability are unable to address capability paradox satisfactory. The views captured the essence of a conceptual framework that has two key routines; explorative or flexible routines and those of exploitative or inflexible routines, in balance but influencing each other through a connector function.

Separate and countervailing dual process model
The fourth organizing theme surfaced key evidences to suggest a conceptual framework with the following characteristics. The model needs to maintain both core capabilities in explorative and exploitative routines separately. The model requires a means, process and culture to allow for interaction, intersection and influences on each other’s direction while they focus on their respective strengths. Finally, the model requires a mechanism for monitoring of both internally and externally existing conditions.

Luhmann (1995) and Schreyögg and KlieschEberl (2007) proposed that capability building and dynamization cannot be treated as two separate system functions, but rather they need to be conceived as countervailing processes designed to manage the contradictions of exploitation and exploration. This thematic analysis approach reveals the following observation and conclusion.

Conditions for successful functioning
Firstly, research participants suggest that communication and the ability to communicate and interact within the various organizational routines seem to be important in the successful functioning of the conceptual framework.

Secondly, the role and presence of a connector or mediator seems to be an important function in helping to countervail or balance decision making. In some instances, this role also helps in the transfer of information and technology in a dual process model.

Thirdly, research participants suggest that mutual respect and trust within the team seem to be an important consideration in the successful functioning of a countervailing dual process model.

Fourthly, participants’ response suggest that the team leader personality or connector is another important consideration for the workability of the countervailing dual process model.

The findings of this research study recognize that there are significant theoretical limitations in the classical theories of dynamic capability. The postulated conceptual framework of a dual countervailing process addresses the aspect of monitoring but does not specifically address the need to still balance explorative and exploitative routines that exist within biotechnology. Through the findings of this research study, it has been demonstrated that the coexistence of explorative and exploitative routines is a necessary condition for building sustainable competitive advantage. The role of monitoring is therefore an important and necessary function to balance these two extreme dimensions, as well as with the three causes of capability paradox; path dependency, structural inertia and commitment.