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Described Dynamic Capabilities

Paper type: Essay
Pages: 10 (2330 words)
Categories: Business, Entrepreneurship, Innovation, Knowledge Management, Technology
Downloads: 1
Views: 1

Voelpel, 2006). Different theorists have presented varying descriptions of dynamic capabilities.

Teece et al. (1997) described dynamic capabilities as the firm’s propensity to integrate, build, and reconfigure internal and external competences to tackle fast shifting environments (Teece, Pisano and Shuen, 1997). Zollo and Winter in 2002 defined dynamic capability as a systematic collection of activities through which a firm creates and adapts its operating practices in pursuit of improved effectiveness. Pavlou and El Sawy (2011) defined dynamic capabilities as proficiencies that help firms extend, modify, and reconfigure their existing operational capabilities into new ones that better match the changing environment.

The dynamic capabilities theory incorporates managerial decisions on resources allocations for capability development and/or innovation activities. The framework does not solely focus on reactive adaptation to change but also the potential of organisations to actively shape their environments (Teece, 2007). Dynamic capabilities enable adaptation by focussing on resource and capability combinations using firm level abilities and mechanisms. According to Helfat (2007) dynamic capabilities includes the ability to identify the need for change, to formulate a response and to implement appropriate measures (Helfat, 2007).

It involves sensing the need for change, learning about how to respond to opportunities and threats and accomplishing reconfiguration (Teece, 2007). Reconfiguration is the internal creation of new capabilities and integration of newly created or acquired capabilities (Capron & Mitchell, 2009). Building capabilities internally amounts transformation of existing capabilities in form, shape or appearance within the firm (Teece, 2007). The sensing capability constitutes establishing processes to regularly scan the local and the distant firm’s business environment (Vanhala, Heilmann & Salminen, 2016). According to dynamic capability theory, some firms are better able than others at altering their resource base by adding, reconfiguring, and deleting resources or competences (Danneels, 2008).

Teece et al. ( 2007) saw competitive advantage in turbulent environments as a function of dynamic capabilities rather than competitive positioning or industry conflict. They applied the term dynamic to reflect the capacity to renew competences so as to achieve congruence with the changing environment. They highlighted the importance of path dependencies, and the need to reconfigure a firm’s resources to enable the firm to change and evolve. Thus according to Ambrosini and Bowman (2009) dynamic capability theory can be considered as an extension of resource based view thinking. Dynamic capabilities are a firm’s behavioural orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities and, most importantly, upgrade and reconstruct its core capabilities in response to the changing environment (Schmitt, Barker, Raisch & Whetten, 2016). The theory further provides that capabilities refer to a firm’s capacity to deploy resources, usually in combination, and encapsulate both explicit processes and those tacit elements (such as know-how and leadership) embedded in the processes. Hence, capabilities are often firm-specific and are developed over time through complex interactions between the firm’s resources. Innovative capability refers to a firm’s ability to develop new products and/or markets, through aligning strategic innovative orientation with innovative behaviours and processes (Wang & Ahmed, 2004).

According to a study by Danneels (2008) some firms are much more able than others to quickly adapt their resource base to changes in the business environment. The study demonstrated how firms use dynamic capabilities to ad, shed and transform their resource base. The study further discussed the role of a firm’s internal research and development in creating new products and innovative processes that allow a firm to create and sustain competitive advantage in changing market conditions (Macher & Mowery, 2009; Danneels, 2008). The findings from the research indicated that existing resources can be put into new uses to address new opportunities. Danneels (2010) further argued that deep knowledge of the resource base and managerial cognition are very important so as to effectively recombine resources. From the above literature, there is a good understanding of the internal activities that are undertaken to renew resource base and sustain competitive advantage. However, the need for renewal is not only based on changes in the external environment but also on whether there is need to build, extend or modify existing capabilities and in which way (Capron & Mitchell, 2009).

Dynamic capabilities allow firms to continually have a competitive advantage and may help firms to avoid developing core rigidities which inhibit development of inertia and stifle innovation (Leonard-Barton, 1992). The dynamic capabilities theory argues that in order to compete successfully firms need ordinary capabilities and dynamic capabilities (Sugiono & Hapsari, 2017; Tondolo & Bitencourt, 2014; Winter, 2003). Ambrosini and Bowman (2009) argued that the role of a dynamic capability was to affect a firm’s resource base and transform it in such a way that a new bundle of configuration of resources is achieved. Thus the value of a dynamic capability is seen in its output. A capability that does not result in creation of resources that allow firms to maintain or enhance their competitive advantage is not valuable (Ambrosini & Bowman, 2009).

According to the dynamic capabilities perspective, strategic renewal can be achieved if firms are able to sense, seize and reconfigure dynamic capabilities in their resource base (Danneels, 2008). Floyd & Lane (2000) proposed that the three levels of strategic renewal can be views as sub-processes namely: competence definition, deployment and modification (Flyod & Lane, 2000). To sense is the ability of the firm through environmental scanning, learning, interpretive activities and strategic direction, to monitor and recognize opportunities and even threats, in existing and emerging markets as well as choose appropriately between different resource alteration paths according to strategic and competence-based fit. Strategic renewal will then be realised through entrepreneurial leadership and generation of new alternative strategies (Augier & Teece, 2009), selection of suitable technologies and business models, implementation of technologies and business models (Augier & Teece, 2006), internal creative destruction and constructive conflict (Danneels, 2008), creative search and strategic sense-making (Pandza & Thorpe, 2009), entrepreneurial activities (Zahra, Sapienza & Davidson, 2006), experiential action (Eisenhardt & Martin, 2000), capability sourcing (Capron & Mitchell, 2009), alliance or acquisition (Helfat et al., 2007; Capron & Anand, 2007) and commitment to R&D (Helfat, 1997). From the above literature it can be concluded seizing encourages firms to take risks and actions and invest in new strategic options.

To seize is the ability of the firm, through knowledge management, integration and coordination, to organize, diffuse and maintain externally generated resources, as well as coordinate roles, responsibilities, and tasks to stimulate utilisation of resources for external resource implementation. Through seizing strategic renewal will take place as asset alignment (Augier & Teece, 2006), design of near-decomposable systems (Augier & Teece, 2006), creation of multi-functional teams to coordinate and integrate resources and skills (Ambrosini & Bowman, 2009; Eisenhardt & Martin, 2000; Macher & Mowery, 2009), acquisition of knowledge management infrastructure (Cepeda & Vera, 2007; Easterby-Smith & Prieto, 2008), building new resources (Danneels, 2008), strategic decision making to pool resources (Eisenhardt & Martin, 2000), divesture in assets (Danneels, 2010; Eisenhardt & Martin, 2000; Moliterno & Wiersema, 2007), inter-firm collaborations to expand and improve core competencies (Lorenzoni & Lipparini, 1999) and external corporate venturing (Keil, 2004).

To reconfigure is the ability of the firm to actively monitor its resource base, identify opportunities for novel configurations, employ and combine resources across external and internal sources, through resource recognition and recombination. In reconfiguration strategic renewal will be realised by adjustments in organizational structure (Karim, 2006), reconfiguration of core processes to exploit economies of scale (Ambrosini & Bowman, 2009), co-evolution of knowledge management techniques (Eisenhardt & Martin, 2000), re-combination of resources and capabilities between divisions (Galunic & Eisenhardt, 2001), alignment and adaptation of specialized assets (Helfat et al., 2007; Teece, 2007), effectuating new combinations (Augier & Teece, 2006), continuous morphing of business models, organizational forms and processes (Rindova & Kotha, 2001) and recognizing replication opportunities (Ambrosini & Bowman, 2009; Danneels, 2010).According to Maijanen and Jantunen (2014) all the three capacities are important when pursing better performance because they depend on each other.

2.3 Conceptual framework

The conceptual framework explains the concepts that were used in the study, their relationships with each other, and how they are were measured. It is an operationalized diagrammatic representation of a theory of the relationship between the independent variable (management models) and the dependent variable (strategic renewal) and other variables such as the moderating variable (strategic inertia) in this study (Serem, Boit & Wanyama, 2013).


Figure 2.1 Conceptual framework


2.4 Empirical review

Ocasio (1997) developed the attention-based view (ABV) of the firm to explain a firm’s strategy formulation, strategic decision making and adaptation. The ABV’s core concept was organisational attention, which was defined as the noticing, encoding, interpreting, and focusing of time and effort on the range of issues and action alternatives facing a firm. Moreover, the ABV proposed that organizational attention is measured in terms of communication through official texts, primarily letters to shareholders, minutes of boards of directors and less commonly through informal communications and meetings. Ocasio et al. (2018) conducted a research to establish how firms manage organisational attention so that they enhance their ability to manage strategic change and renewal processes. The researchers explored the role of social interactions, communication and attentional engagement in shaping organisational attention. The findings of the study indicated that an advanced understanding of organisational attention enhanced the ability of a firm to develop new, improved strategy practices to manage change and renewal processes. Further to, the study concluded that integrating social interactions, communication and attentional engagement more explicitly in strategic decisions assisted in sensing, seizing and reconfiguring opportunities for strategic change especially when renewal is less incremental which corresponds to the findings of Maintunen & Janutunene (2014) and Danneels (2008). It was further observed that, the general role of communication in propagating for new strategic agenda that result in strategic change and renewal remain underdeveloped. Therefore the researchers proposed that future research could investigate the role of communication in developing new strategic agenda and strive even further to develop new methods to elucidate the communicative dynamics in strategic change. Future researchers could also examine how communication dynamics translate to effective strategic change, renewal and adaption. In conclusion the researcher argued that, different strategic themes emerge and compete for the attention of the decision makers. The themes evolved over time from one management team meeting to another in different parts of the organization and eventually become articulated in the corporate strategic agenda that is then formally communicated across the organization (Ocasio et al. 2018). This research added to this body of knowledge as it explores the role of feedback on target performance in the relationship between results-based management and strategic renewal.

The purpose of a study by Shi & Zhang (2018) was to explore the impact of inbound open innovation and inertia on a firm’s radical innovation capability, as well as the moderating effect of organizational inertia on the relationship. Chesbrough & Bogers (2014) defined open innovation as a firm’s distributed innovation process and ability to use external and internal ideas and directions to market and advance their technology in promoting their innovative and financial performance which is based on purposively managed knowledge flows across organisational boundaries. Open innovation can be broadly categorised into two: inbound and outbound. Inbound innovation is where a firm is not so keen on utilizing its own R & D, instead it taps into the discoveries of other firms. Prior research argued that openness to external sources of knowledge allows a firm to enrich its ideas by expanding the pool of opportunities available to them. Therefore inbound open innovation must evaluate the degree to which a firm accesses available external technologies to compliment the ones it already possesses. This includes acquiring external knowledge, in-sourcing licensing-in, joint R&D, mergers and acquisition or strategic alliance and end-user involvement (Chesbrough & Bogers 2014; Hung & Chou 2013). The construct of open innovation was first introduced by Chesbrough in 2003, and has continued to elicit scholarly research on its effect on industry and firms’ innovative and financial performances. Radical innovation capability was defined as the quest for completely new products and services to cater for novel and emerging customer needs (Slater et al., 2014). It was further defined as innovation that is original and forms the foundation for future innovation outcomes (Datta, 2016). The research studied two forms of inertia: cognitive inertia and network inertia. Network inertia was viewed as persistent resistance to change that a firm faces when it attempts to dissolve old relationships and form new networks ties due to a degree of dependence on past dyadic ties in innovation networks (Mens et al., 2015). Cognitive inertia was defined as the accumulation of past successes and past knowledge base which aid in innovation through synthesis and utilization of such knowledge without thinking up new ways (Zhou & Caroline, 2012). The researchers applied the inertia-based view which states that, a firm that overly maintains and over-depends on existing partnerships in the innovation network obstructs its ability to diversify because these fixed partners induce the firm to maintain its status quo. Similarly, Genus & Jha (2012) argued that resource rigidities and routine rigidities always create a strong internal resistance against radical changes by limiting firm’s capacity to acquire novel knowledge, preventing the firm from discovering new technologies and causing a firm to concentrate too much resources on existing networks instead of emerging trends. The findings of the study indicated that inbound open innovation and inertia affect a firm’s radical innovation capability. Cognitive inertia reduces the effect of inbound open innovation on radical innovation capability. Network inertia negatively moderates the interaction between inbound open innovation and radical innovation capability. From their study Shi & Zhang (2018) concluded that firms with network inertia had a tendency to connect very closely with specific partners who made them less likely to seek out new knowledge and technology. , Because of the close ties and familiarity with the methods that had worked earlier, the firms had a reluctance to seek new methods and new partners. On the other side of the coin, the researchers appreciated the positive

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Described Dynamic Capabilities. (2019, Dec 08). Retrieved from https://studymoose.com/described-dynamic-capabilities-essay

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