Capability Agreements and Risk Glenda C.M. Amaral1, Giancarlo Guizzardi1, Nicola Guarino2, Daniele Porello2, and Tiago Prince Sales3 1Free University of Bozen-Bolzano, Bolzano, Italy glendacarla.mouraamaral@stud-inf.unibz.it giancarlo.guizzardi@unibz.it 2ISTC-CNR Laboratory for Applied Ontology, Trento, Italy nicola.guarino@cnr.it,daniele.porello@loa.istc.cnr.it 3University of Trento, Trento, Italy tiago.princesales@unitn.it Abstract. In this paper we analyse the ontological nature of capability agreements and discuss the relation between capability delegation, vulnerabilities and risk. Keywords: capability, vulnerability, risk, ontology 1 Introduction Since the early 1980s, the proliferation and increasing importance of interfirm alliances have received considerable attention in the strategic management literature [7]. As the study of alliance networks has gained popularity, theoretical analysis of the competitive advantage of organizations participating in alliances have been developed, focusing on resource-centric theories [2]. Nevertheless, research has shown that it is the services that resources provide, not resources themselves, that generate value for the firm [8]. Consequently, ownership or control of resources is not a necessary condition for com- petitive advantage. In this sense, capability-based theories, which focus on “adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences toward a changing environment” [9], have taken shape. Despite the relevance of capabilities to the success of enterprises, little attention has been given to the theoretical analysis of this concept in the context of interfirm alli- ances. In this paper, we tackle this issue by analyzing the ontological nature of capabil- ity agreements, taking into account the broader implications of incorporating external capabilities embedded in the firm's alliance network. To accomplish that, we conduct, in Sections 2 and 3, an ontological analysis of capability agreements, under the princi- ples of the Unified Foundational Ontology [4]. As we shall see, our analysis shows an important result: capability agreements expose external dependencies and reveal new vulnerabilities, which may enable the occurrence of risk events. Therefore, we can state that capability agreements imply a relation of duality between capabilities and vulner- abilities: at the same time that it creates a chain of dependencies on capabilities through- out the alliances network, it forms a chain of vulnerabilities, due to the possibility that one or more participant nodes fail to fulfill their commitments. We conclude and pre- sent final considerations in Section 4. 2 2 Capability and Capability Agreement The term capability is used in a variety of contexts with different meanings and in- terpretations. However, most views on capability agree that possessing a capability means to have competence and ability (and also the right resources in adequate amount) to do something. Sandkuhl and Stirna [11] define capability as the ability and capacity that enables an enterprise to achieve a business goal in a certain con-text. In The Open Group Architecture Framework (TOGAF) [12] capability is defined as the ability that an organization, person, or system possesses. In this paper we adopt the interpretation of capability proposed by Azevedo [1], which defines ca-pability as the power to bring about a desired outcome. We use the UFO semantics of modes (more specifically, of dispositions) defined in Guizzardi [6] to represent capabilities. In UFO, a capability is a specific type of dispo- sition that endows their bearers with the potential of exhibiting some behavior or bring- ing about a certain effect under certain conditions. When an alliance is formed, a capability agreement is established, and the partici- pants endow a subset of its capabilities to the alliance with the expectation of generating common benefits. Fig. 1 shows an OntoUML [4] model representing a capability agree- ment for a single dyadic alliance in which a FOCAL AGENT is endowed with capabilities offered by a PARTNER AGENT. AGENT is a rolemixin [4], since it represents roles played by entities of different kinds, e.g., persons and organizations. In our model, both the FOCAL AGENT and the PARTNER AGENT represent organizations. Fig. 1. Capability Agreement. The CAPABILITY AGREEMENT mediates the relation between the FOCAL AGENT and his partner by being a social relator [5] composed of the PARTNER AGENT’s commit- ments and the FOCAL AGENT’s claims with respect to the capabilities offered. Intentions are mental moments [5] that inhere both in the FOCAL AGENT and in the PARTNER AGENT and are tied to the motivation for establishing the agreement. The propositional contents of AGENT’s intentions are his goals. By virtue of the capability agreement, the 3 PARTNER AGENT commits to perform actions to achieve the results determined in the agreement. Fig. 2 represents the execution of these actions. Fig. 2. Capability Agreement Execution 3 Capability Incorporation and Risk As a result of the capability agreement, the capabilities offered by the PARTNER AGENT are aggregated to the set of capabilities of the FOCAL AGENT, as well as some of the PARTNER AGENT’s non-offered capabilities, the latter being derived from opportunities that range beyond the capability agreement immediate scope (for example, an agent may benefit from the partner’s reputation, which is not part of the agreement). The UFO concept of disposition is also applicable for the external capabilities. When an agent delegates to another agent the performance of certain processes that realize a capability, he can still, in a sense, to be considered as having that capability, because he acquires that capability grounded in a relation of delegation [5]. This is related to the idea of what an agent can “socially perform”: If A has a commitment from B to execute S, then A (socially) can do S. An object can have dispositions which arise from its parts, or from the network of its delegation relations [5]. In our example, if the FOCAL AGENT has a commitment from the PARTNER AGENT with respect to (w.r.t.) the offered capa- bilities, then the FOCAL AGENT (socially) has these capabilities. A further important aspect, related to the motivation behind the establishment of the capability agreement, is the FOCAL AGENT’s awareness of his dependence on external agents to satisfy the desire of achieving a certain goal G. With the (social) commitment of the PARTNER AGENT, this desire becomes an intention to G inhering in the FOCAL AGENT. Considering that intentions are self-commitments [3], the FOCAL AGENT be- comes more vulnerable and may be exposed to unanticipated risks. We may get until a much higher level of vulnerability if, believing he has the social capability w.r.t. G, the FOCAL AGENT makes a commitment to someone else (e.g. a THIRD AGENT) to employ this social capability to achieve G. In this case his vulnerability is bigger because, if the PARTNER AGENT doesn’t fulfill his commitment on G, not only the FOCAL AGENT’s self-commitment to G is frustrated but also his social-commitment to G is frustrated. Moreover, if it is true that a commitment without a corresponding capability entails liability then, if the THIRD AGENT decides to exercise his claim towards the FOCAL 4 AGENT w.r.t. G, not only G but other goals of the FOCAL AGENT may be dented (e.g., the FOCAL AGENT might be subject to legal or social sanction from the THIRD AGENT). We analyze the relation between external capabilities and risk, based on the Com- mon Ontology of Value and Risk (COVER) defined in Sales et al [10]. COVER pro- poses an ontological analysis of notions such as Risk, Risk Event (Threat Event, Loss Event) and Vulnerability, among others. When a capability agreement is not successfully executed, because the PARTNER AGENT fails to fulfill its commitments, the RESULTING SITUATION (i.e., the one satisfy- ing the FOCAL AGENT’s corresponding goal) may not be obtained, and consequently, the FOCAL AGENT may not be able to achieve his goal. In the worst case, the RESULTING SITUATION is a threatening situation that may trigger a THREAT EVENT, which is the one with the potential of causing a loss. The LOSS EVENT is a RISK EVENT that impacts intentions in a negative way, as it hurts the FOCAL AGENT’s intentions of reaching a specific goal. Fig. 3 represents the relation between external capabilities, vulnerabilities and risk. Fig. 3. Shared Capability and Risk 4 Conclusions In this paper we presented an ontological analysis of capability agreements in the con- text of interconnected organizations. 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