This article develops the concept of internal subsidiary embeddedness as the canvas within which subsidiary strategy takes place. Developing an inductive model, we identify three hierarchical levels of embeddedness. The first level is operational embeddedness, which relates to interlocking day-to-day relations. The second level is capability embeddedness, which concerns the development of competitive capabilities for the multinational as a whole. The third level is strategic embeddedness, which concerns a subsidiary's participation in a multinational corporation's strategy setting. We derived our concept of embeddedness from an in-depth case study. Embeddedness is not merely an outcome of the institutional setting in which a subsidiary is situated, but is a resource a subsidiary can manage by means of manipulating dependencies or exerting influence over the allocation of critical resources. A subsidiary can modify its embeddedness to change its strategic restraints. Therefore, the development of subsidiary embeddedness becomes an integral part of subsidiary strategy. Copyright (c) Blackwell Publishing Ltd 2008.

The dynamic capabilities framework has been used to explain how firms successfully adapt to changing environments. However, tensions exist in the literature surrounding the idiosyncratic, tacit and hence inimitable nature of dynamic capabilities. The literature struggles to explain in cognitivist terms how such firm capabilities are acquired in the first instance. In this paper, we argue that a firm's dynamic capabilities rest upon a tacitly-shared substrate of sensitivities and predispositions that precede cognitive representation. These sensitivities and predispositions are typically transmitted and shared unconsciously through social practices rather than through formal instruction. They provide the microfoundational substrate of capabilities that enable a firm to effectively respond by orienting its members towards external environmental challenges in a manner unique to the firm's history. Such sensitivities and predispositions provide an organizational modus operandi for members to reconfigure capabilities and resources and to capitalize on the opportunities arising therefrom.

PurposeThis paper aims to present a novel way to conceive knowledge strategy (KS). It suggests that a firm could outperform another by establishing a coherent and integrated KS depending on the objectives pursued and the understanding of knowledge management (KM) by managers, the use of KM tools, and organizational aspects to support KS implementation.Design/methodology/approachA cluster analysis was used to study the effect of KS on business performance and innovation based on a cross‐sectional sample of Spanish firms. Additional statistical analyses were used in order to develop a taxonomy of KSs.FindingsThe paper shows that the way an organization approaches knowledge management has major implications on the development of their strategy and the outcomes of KS application. Four types of KS are thus described based on the empirical analysis, i.e. proactive, moderate, passive and inconsistent, each of them having different effects on business performance and innovation.Research limitations/implicationsThe research is limited to high rate innovation industries. Future studies could include other industries and a more diverse sample of firms.Practical implicationsThe conception of KS presented here is a powerful approach that can lead an organization to achieve further innovation and higher levels of business performance.Originality/valueAn integrated and coherent KS has the potential to produce optimal results in terms of technological innovation and business performance.

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