Theoretical foundation: Dynamic Capabilities

The dynamic-capabilities theory has been introduced by David J. Teece as an extension of the resource-based view of the theory of the firm. The resource-based view proposes that the ability of a firm to create and maintain a competitive advantage is based on a certain set of strategically relevant resources, which are (1) valuable, (2) rare, (3) difficult (if not impossible) to imitate and (4) non substitutable. Teece observed that in changing environmental conditions, like for example a technological disruption, companies will have to adapt their portfolio of resources.

Take the example of Kodak which was clearly the dominant firm in the imaging market when the market was still based on chemical processes rather than digital image processing. With the change to digital photography Kodak was still well equipped with the needed resources to create a competitive advantage when competing on selling film or processing the printing of images on paper. In the digital world however different resources were needed to provide the customer with a superior imaging experience.

Technologically wise there was the need to develop sensors to translate an image into a digital signal, write software that allows treating digital images and create digital photo albums so that customers can store, share and show their images.

Most likely the needed resources for the digital world would also have included managerial abilities such as forming and managing alliances with partners that can contribute complementary assets, such as software companies or companies that can play complementary roles in the new value chain.

Teece proposes that companies that are in a situation similar to Kodak’s need to have the:

(non-imitable) capacity […] to shape, reshape, configure, and reconfigure assets (resources) so as to respond to changing technologies and markets[…]

In our view of organizational future orientation we agree with this assumption and add a particular emphasis on the role of the manager to enable and sustain the dynamic capabilities of a firm. As we pointed out in our post on technology scouting the success can only be assured if individuals drive the process that combines intelligence gathering and acting (for example acquiring the needed technologies).

Likewise we do not believe that the process steps of dynamic capabilities proposed by Helfat et al. (2007): (1) search & selection, (2) decision making,  (3) configuration & deployment, and (4) implementation can be judged or managed independently, but rather propose that they have to be driven by committed and capable individuals along the whole process.

We therefore propose that for advancing the future orientation of a firm we have to study closer the role of the manager – a view also advocated by strategy-as-practice scholars – who should be able to:

  • identify external environmental change
  • integrate and interpret different perspectives
  • recognize the need to reconfigure the portfolio of strategic resources of the firm
  • take action, orchestrate and drive the renewal of the resource portfolio

For further reading we have assembled a collection of relevant literature in our reader for underlying theories in our bibliography (click here to go to dynamic capabilities literature).

For further reading we also recommend an Interview with Jeffrey Martin, author of the highly cited article: “Dynamic Capabilities: What are they?

3 Responses to “Theoretical foundation: Dynamic Capabilities”

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