Handbook on Dynamic Capability
©2017
Textbook
85 Pages
Summary
In this book, the concepts of innovation and dynamic capabilities are thoroughly studied and evolved into a new conceptualization for integration. Since the nature of business organizations is to strive for achievement of competitive advantage relentlessly, it is imperative for business organizations to develop suitable capabilities and, thus, leverage them to gain an advantageous edge in the business environment. The dynamic capabilities that are built and deployed by firms to cope with changing business conditions help the firms to adapt to the demand of the situation through resource mobilization and effective management. Dynamic capabilities usually appear in varied breadth and span and culminate into hierarchical stages. The current century business slogan “Innovation” is adapted and considered by every business firm. Development and maintenance of innovation is being perceived as a critical organizational function by managers. It is unanimously agreed upon by senior managers that there is a need for the building of organizational capabilities to promote innovation for a competitive advantage and to get the most benefit from such innovations in changing scenarios. This requires the integration of dynamic capabilities and innovation management disciplines for building innovation management capabilities in organizations.
Excerpt
Table Of Contents
Similar views are also given by Kazozcu (2011) that in
turbulent environments, firms need to develop a unique set
of resources to build competitive advantage. This unique
set of resources built into skills and capabilities which are
referred as core competences. However, in the changing
nature of the environment, these core competences cannot
remain static and necessitates continuous renovation. The
ability to upgrade and reinvent these core competencies
dynamically brings strategic flexibility in organisations.
"The concept of capabilities is not new as it was first
proposed by Penrose (1959), who suggested that resources
are comprised of a bundle of potential services. While these
resources are available to all firms, the capability to
assemble, integrate, and deploy them effectively is
heterogeneously distributed in industry (Schendel, 1994)."
Poulis and Jackson (2007) argued that the nature and
creation of dynamic capabilities not only depend on the
2
idiosyncratic characteristics of the frim, but also on
external complexity in the business environment.
Companies could use these dynamic capabilities as
weapons in the war against uncertainty and complexity of
external environment. Zelbst et al. (2010) contended that
"adoption of market orientation combined with JIT, TQM,
and agile manufacturing programs leads to organizational
capabilities of relatively low cost operation, relatively high-
quality product and service production, and relatively rapid
response to changes in customer needs and demand." Thus,
dynamic capabilities reflect organisational ability in the
achievement of competitive advantage in a given path
dependencies and market positions (Leonard-Barton,
1992).
Dynamic capabilities are a set of unique and
recognizable processes in organisations such as product
development, strategic decision making, networking, etc.
and are neither vague nor tautological. "Fan et al. (2009)
3
summarized the aspects of dynamic capabilities as the
competencies that allow a firm to quickly reconfigure its
organizational structure and routines in response to new
opportunities. They discussed the dynamic capabilities that
are related with cost reduction, outsourcing, knowledge
networking and knowledge management."
Tony Davila et al. (2012) classified dynamic capability
in to "Financial Management Capability, Product
Development Capability, Human Resource Management
Capability, Strategic Planning Capability, Sales and
Marketing Capability, Partnership Management
Capability." Ho et al. (2011) examined the influence of
technological capabilities and design capabilities on
technology commercialization and observed that both
technological and design capabilities have shown positive
influence on technology commercialization.
4
Chapter 2
The evolution of the dynamic
capabilities concept
"
The dynamic capability concept is founded
theoretically in Resource-Based View and Evolutionary
Theory with its emphasis on routines and processes (Helfat
and Peteraf 2009). These two foundations are discussed in
the next sections before elaborating on capabilities and
dynamic capability as an emerging theory.
"
2.1 The Resource-Based View
"Penrose (1959) in a significant departure from the
neoclassical economics of the time proposed that the
configuration of the resources possessed by a firm was the
key source of competitive advantage
"
in relation to firm
growth: "if we want to explain why different firms see the
same environment differently, why some grow and some
do not...then we must take the resources approach"
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(Penrose, 1959).
"
Economic theory at that time held that
firms were largely homogenous entities operating in
markets in search of equilibrium.
"
Economic theory did not
generally consider
"
the differences which existed between
firms or did it attempts to include the actions of individual
managers or entrepreneurs in its theories.
"
Helfat and
Peteraf (2009) argue that "it is an understatement to say
that economic theory underplays the role of the manager; in
fact, the strategic manager simply does not exist in any
recognizable form."
"
Penrose proposed that it was the manner in which
firms utilize their resources and services, they could
deliver, paramount importance, rather than the simple
existence or otherwise of the resources themselves.
"
She
defined resources to include both
"
the physical resources
available to a firm and the human resources employed and
available to the firm.
"
Penrose also found that
"
there was
an interrelation between the physical and human resources
6
which influenced the productive services of the firms.
"
Clearly, the physical resources present shape to the services
which management might be capable of delivering.
However, Penrose (1959) also held that "...the experience
of management will affect the productive services that all
its other resources are capable of rendering."
This recognition of the critical role of the management
pervades Penrose's work and is central to the theory
development. Penrose also found that the image which the
firm's managers held of their own firm and the
environment in which the firm operated was a critical issue
in relation to the decisions which those managers would
take.
"
Wernerfelt (1984) seemed to synthesize Penrose
(1959) and Porter's (1990) contributions when he argues
for
"
examining firms from a resource perspective rather
than a product perspective.
"
Building on this concept,
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Barney (2001) proposed
"
four indicators in relation to
resources (value, rareness, imitability and substitutability)
which are all required if a resource is to deliver a sustained
competitive advantage to a firm.
"
In his thesis, Barney (2001) defined valuable resources
as enabling a firm "to conceive or implement strategies that
improve its efficiencies and effectiveness." Resources are
considered to be rare in the sense that they are not widely
available. Barney struggles
"
to define the level of rarity,
which is necessary for sustainable competitive advantage.
"
"
It is possible that rarity becomes less significant if one
accepts Penrose's proposition that it is the way in which the
resources are used, which is paramount as each firm has the
propensity to use a similar resource differently. Barney's
final two requirements in relation to resources of
imperfectly imitability and substitutability are related.
"
If
the resource
"
which is valuable and rare can be imitated by
competing firms,
"
then sustained competitive advantage is
8
impossible. Similarly,
"
if the resources or the results of the
application of the resources can be achieved through the
application of different but strategically equivalent
resources, then the competitive advantage cannot be
sustained.
"
Peteraf (1993) proposes a
"
four-factor resource-based
model for sustainable competitive advantage, which
develops Barney's (2001) four criteria.
"
Peteraf concurs
that
"
resources must be heterogeneous if they are to be of
value in sustaining competitive advantage.
"
The second
factor relates to "ex-post limits to competition" (Peteraf,
1993).
"
This factor includes two of Barney's requirements
relating to imitability and substitutability.
"
Clearly,
"
if a
competing firm can substitute an alternative resource for
the same result,
"
any competitive advantage will be short
lived.
9
However,
"
imitability is more difficult as the basis of
the advantage may not be clear or well understood (even by
the firm possessing it).
"
The third factor relates to the
mobility of the resource.
"
Where the resource is
imperfectly mobile, then there is a greater opportunity for
sustaining the competitive advantage.
"
A particular case of
immobility relates to resources, which have a greater value
when used together.
"
The fourth and final factor is that of
"ex-ante limits to competition" (Peteraf, 1993).
This proposes that there must have been limited
competition for the position now occupied by the firm.
"
"
If
competition had not been limited, then no sustained
competitive advantage could have ensued as any potential
gain
"
would have been competed away. Like Barney,
"
Peteraf finds that all four factors are required for sustained
competitive advantage and that the four factors may, in
fact, be related.
"
10
"
Barney (1991) posits that the context of the firm, both
in terms of its market positioning and its historical context,
are critical factors. Resources which are valuable in one
context may have no value in another. The same resource
in two different firms could have a significantly different
potential as a result of the historical decisions previously
taken in each firm and the understanding which might then
exist in relation to the possible uses of resources and related
outcomes.
"
Like Penrose, Barney appreciates that "for it is
managers that are able to understand and describe the
economic performance and potential of a firm's
endowments. Without such managerial analysis, sustained
competitive advantage is not likely" (Barney, 1991).
2.2 Organisational Routines View
"
In general discussion we all understand the exercise of
these skills as routines, which have been learned and
improved with practice. More complex decisions can also
be the subject of routine behaviour. Many organisations
11
will have an emergency procedure which is to be followed
in the event of a fire. Such a procedure will require the
evacuation of a building and some basis for ensuring that
all employees are accounted for.
"
Simultaneously, such a procedure might also involve
notifying
"
the emergency services and might also involve a
trained team of employees tackling the fire in the first
instance.
"
"
Such procedures are often practiced so that if
the event actually occurs, the responses and decisions made
by individuals will be coherent and safe. This is the essence
of a routine.
"
"
The literature describes routines in two different ways:
as behavioural or cognitive regularities.
"
Behavioural
regularities propose routines as "recurrent interaction
patterns" (Becker, 2004). These patterns occur in the
interaction between a number of actors rather than the
actions
of one person. To clarify this point, (Dosi et al., 2000)
12
proposed to "reserving the term skill to the individual level and
routines to the organisational level." Viewing routines as
cognitive regularities would define routines as rules, which
suggest how to react to or deal with specific situations. Examples
could include standard operating procedures, rules of thumb and
programs.
Following Winter (2003) routines are defined as
"behaviour that is learned, highly patterned, repetitious, or
quasi- repetitious, founded in part in tacit knowledge and
the specificity of objectives." Nelson and Winter (2009)
stated that well defined routines "structure a large part of
organisational functioning at any particular time." Routines
develop over time and are based on the history of the
organisation (Teece et al., 1997) and also the experience of
the individuals involved (Helfat & Peteraf, 2003).
"
A central premise of the resource-based view is that the
resources available to firms are heterogeneous in nature
(Barney, 1991). The routines of a firm are a resource and
13
play a critical role in the services which the configuration
of resources in any firm can produce. The incremental and
context-specific adjustment of a firm's routines is a key
source of resource heterogeneity (Helfat & Peteraf, 2003).
"
Routines allow an organisation to store knowledge.
Nelson and Winter (2009) proposed that "the routinisation
of activity in an organisation constitutes the most important
form of storage of the organisation's specific operational
knowledge. Basically, we claim that organisations
remember by doing."
Hilliard and Jacobson (2011) describe the essence of
evolutionary theory as "the firm is a repository of
knowledge and that knowledge resides in the organisational
capabilities that determine the firm's performance." Nelson
and Winter (2009) discussed how individuals in
organisations respond to the messages they receive, based
on their knowledge of the organisation and its requirements
14
rather than being based on the content of the specific
message received.
Routines also provide stability and control to
organisations. Routines define expected and effectively
accepted actions and behaviours in an organisation.
Barnard's (1938) description of "a zone of indifference,"
which "resides in each individual within which orders are
acceptable without conscious questions of their authority,"
echoes the truth described by Nelson and Winter. Kogut
and Zander (1992) concur stating that it is the stability in
the relationships between capabilities and social knowledge
of how the firm operates that "generates the characteristics
of inertia in a firm's capabilities." Routines, therefore,
allow the organisation to function in a controlled and stable
manner, all other things being equal.
"
All other things do not remain equal indefinitely. The
environment in which any firm exists changes over time
15
and may change frequently. As routines are context specific
and objective specific, a changing environment may mean
that once appropriate routines become obsolete.
"
Negative
feedback mechanisms within the routine can be ignored
leading to inertia (Becker, 2004).
"
Routines are capable of
being changed in response to experience and feedback.
This change can be incremental or more fundamental
depending on the significance of the changes experienced.
"
2.3 Organisational Capabilities View
"
All organisations have capabilities. Citing the example
of the airline industry, Dosi et al. (2000), described the
ability of an airline to process passengers in a generally
uneventful manner from check-in, to boarding, through the
flight and safely to the destination.
"
A more in depth view
of the delivery of this service reveals
"
a series of
organisational routines, which have worked in a harmony
of sorts to deliver a maintained aircraft to a specific gate on
time, with an appropriately trained crew to operate it, with
16
fuel for the journey and food for the passengers, etc.
"
In
this sense, it is easy to
"
understand routines as being
building blocks of capabilities (Dosi et al., 2008).
"
Dosi et al. (2000) attempted to distinguish between
routines and capabilities by attributing no "presumption
regarding the evident purpose" to routines.
"
This is
completely at variance to the definition subsequently used
"
by Winter (2003) and discussed above which firmly places
routines in context with a "specificity of objectives"
(Winter 2003).
"
The attempted distinction in Dosi et al.
(2000) is unnecessary if one considers routines as elements
of the construction of capabilities.
"
"
Winter (2003) proposes that there are different levels
of capability.
"
He defines "zero level" capabilities as the
capabilities which allow a firm to function,
"
delivering a
consistent rate and quality of production in a market place
where the volume and nature of demand are static.
"
Where
an organisation changes
"
the product or service being
17
offered, or changes the process by which it is created or
changes or adds to the locations where the product or
service is offered, then a higher form of organisational
capability has been invoked.
"
"
This distinction is useful as
it highlights that all capabilities are not equal, and some
capabilities may be completely inadequate
"
in the face of
an environment which is changing.
"A distinction can be drawn between technological and
organisational capabilities (Dosi et al., 2008).
Technological capabilities refer to capabilities, which deal
with the physical elements of an organisation's resources.
"
They suggest routines for how to handle such issues and
might relate generally, for example, to
"
capabilities in
relation to the operation of printing machinery, the control
of utilities supplied to a factory, etc.
"
Organisational
capabilities
"
relate more to the coordination and social
interactions within the organisation and relate more to
human relations than the physical resources.
"
There is an
18
overlap between these capabilities as the particular manner
in which
"
a physical process may operate might be affected
by the human relations context.
"
Equally, the extent of the
physical resources available and their condition might
influence the interaction taking place.
"
The real value in the
distinction is that it is conceivable that very similar
technological capabilities could be present in different
firms and in quite different contexts, whereas the
organisational capabilities are more likely to be
heterogeneous among firms as the context and history of
each firm will be different.
"
Bender (2008) introduces an additional typology in
describing transformational capabilities as "the enduring
ability of an organisation to transform available general
knowledge into plant, firm or task specific knowledge and
competence" and configurational capabilities as "enduring
ability to synthesise novelty by creating new configurations
of knowledge, artefacts and actors." Transformational
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Details
- Pages
- Type of Edition
- Erstausgabe
- Publication Year
- 2017
- ISBN (PDF)
- 9783960676362
- ISBN (Softcover)
- 9783960671367
- File size
- 961 KB
- Language
- English
- Publication date
- 2017 (March)
- Grade
- 1
- Keywords
- Dynamic capability Organisational Routine Organisational Capabilities Human resources Innovation Management Competitive advantage Resource-based view
