Timing cooperative relationships with sequential capability development process to reduce capability development trade-offs Ramesh Dangol, Mona Bahl, Birsen Karpak Williamson College of Business Administration, Youngstown State University, Youngstown, OH 44555, USA article info Article history: Received 8 December 2014 Accepted 9 July 2015 Available online 17 July 2015 Keywords: Capabilities Capability development process Sand Cone Theory Cooperative relationships Analytical Network Process abstract A key challenge for a firm is to continuously develop new capabilities in order to address changes in the external environment. Prior research on firm capabilities posits that knowledge sharing within supply chains can contribute to the firm's new capability development efforts. Although existing research on capabilities clearly links firm capabilities to firm advantage, it does not prescribe a process by which a firm should develop the capabilities required to compete successfully in the marketplace. Such prescription is necessary because (1) a firm faces trade-offs when developing capabilities in the short- run and (2) interdependencies among capabilities require a firm to prioritize and develop capabilities in a sequential manner. The sequence in which a firm develops new capabilities matters when the development of one capability can influence the development of a different capability and the effect is unidirectional and asymmetrical. Prior research primarily relies on Ordinary Least Squares (OLS) and Structural Equation Model (SEM) to determine whether differences in a firm's capabilities explain differences in performances. However, these statistical tools have limitations when determining the sequence in which a firm should develop various interdependent capabilities. Therefore, the purpose of this study is to delineate and prescribe a capability development process using Analytic Network Process (ANP) to reduce capability development trade-offs. ANP can be used to determine which capabilities are more important to achieving a desirable firm performance and to prescribe the sequence by which a firm can develop capabilities. We show that a firm can avoid capability development trade-offs and develop interdependent capabilities by efficiently using knowledge acquired from suppliers and customers when it develops a quality capability followed by low cost, delivery, and flexibility capabilities. & 2015 Elsevier B.V. All rights reserved. 1. Introduction Two fundamental goals of management research are (1) to predict changes in performance given changes in management actions and (2) to prescribe management actions that improve firm performance. For example, regarding the first goal, research on cooperative supply chain networks (cooperative relationships) predicts a positive relationship between cooperation with both suppliers and customers and firm performance (Fynes et al., 2005a, 2005b; Wong et al., 2011). Using this observed positive relationship, researchers recommend that firms cooperate with suppliers and customers in order to attain competitive advan- tage (Dyer, 1996a, 1996c; Dyer and Singh, 1998; Frohlich and Westbrook, 2001; Hult et al., 2003, 2007). This addresses the second goal of management research. One way cooperative relationships help a firm achieve a competitive advantage is by allowing the firm to develop new capabilities that are required to gain a competitive advantage. Cooperative relationships help a firm acquire external capabilities that are embedded in its suppliers and customers' operating routines (Fynes et al., 2005a; Keynes, 2006; Salvador et al., 2004). A firm can leverage these acquired capabilities from suppliers and customers to develop its internal capabilities. Although it is true that cooperative relationships help a firm develop its internal capabilities, existing literature on cooperative relationships ignores the process by which a firm ought to develop them efficiently. The process by which a firm develops internal capabilities using capabilities from external suppliers and custo- mers matters when different capabilities are interdependent and when a firm faces capability development trade-offs in the short- run. With regards to the development of interdependent capabil- ities, changes in one capability can affect development of different capabilities. For example, improvements in a firm's quality cap- ability can improve the firm's low cost capability (Ferdows and De Meyer, 1990). In some cases, a change in a given capability could have a greater effect on another than the effect of the latter capability on the prior. For example, a firm's quality capability has a greater effect on the firm's cost capability than cost capability has on quality capability (Ferdows and De Meyer, 1990; Porteus, Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/ijpe Int. J. Production Economics http://dx.doi.org/10.1016/j.ijpe.2015.07.014 0925-5273/& 2015 Elsevier B.V. All rights reserved. E-mail addresses: rdangol@ysu.edu (R. Dangol), mbahl@ysu.edu (M. Bahl). Int. J. Production Economics 169 (2015) 179–189