Véronique Ambrosini and Cliff Bowman - · PDF fileInternational Journal of Management Reviews (2009) doi: 10.1111/j.1468-2370.2008.00251.x International Journal of Management Reviews

International Journal of Management Reviews (2009)doi: 10.1111/j.1468-2370.2008.00251.x

International Journal of Management Reviews Volume 11 Issue 1 pp. 29–49 29

© 2009 The AuthorsJournal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Blackwell Publishing LtdOxford, UKIJMRInternational Journal of Management Reviews1460-85451468-2370© Blackwell Publishing Ltd 2008XXX ORIGINAL ARTICLEWhat are dynamic capabilities?XX

What are dynamic capabilities and are they a useful construct in strategic management?Véronique Ambrosini1 and Cliff Bowman

The dynamic capability perspective extends the resource-based view argument byaddressing how valuable, rare, difficult to imitate and imperfectly substitutable resourcescan be created and how the current stock of valuable resources can be refreshed inchanging environments. The concept of dynamic capabilities emerged in the 1990s, and thefield has advanced considerably since. This paper presents a review as well as a synthesis ofthe extant literature. This synthesis first highlights, that dynamic capabilities are shaped byenabling and inhibiting variables within and outside the firm, including the perceptions andmotivations of managers; secondly, it identifies processes that create dynamic capabilities;and thirdly, it explains that dynamic capabilities do not automatically lead to performanceimprovements. Finally, the paper addresses some areas of confusion and contradiction thathamper the development of the literature.

Introduction

The field of strategic management is largelyconcerned with how firms generate and sustaincompetitive advantage. The resource-basedview (RBV) argues that resources that aresimultaneously valuable, rare, imperfectly imi-table and imperfectly substitutable (VRIN)are a source of competitive advantage (Barney1991, 1995). The underlying assumptions onwhich the RBV of the firm is based are thatresources are heterogeneous across organiza-tions and that this heterogeneity can sustainover time. It is a theory to explain how some

firms are able to earn super-profits in equilib-rium and, as such, it is essentially a staticview (Barney 2001a,b; Priem and Butler 2001;Lockett et al. 2009). It does not specificallyaddress how future valuable resources couldbe created or how the current stock of VRINresources can be refreshed in changingenvironments: this is the concern of the dynamiccapability perspective. This perspective isargued to be an extension of the RBV; it sharessimilar assumptions (Barney 2001b), and ithelps us understand how a firm’s resourcestock evolves over time and thus how advan-tage is sustained. The dynamic capability

What are dynamic capabilities?

30 © 2009 The AuthorsJournal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management

perspective focuses on the capacity an organ-ization facing a rapidly changing environmenthas to create new resources, to renew or alterits resource mix (Teece et al. 1997), and itacknowledges that ‘the top management teamand its beliefs about organizational evolutionmay play an important role in developingdynamic capabilities’ (Rindova and Kotha2001, 1274).

How firms change, sustain and developcompetitive advantage and capture value arecritical concerns to both practitioners andacademics alike and, while many fields addresschange-related issues (e.g. organization learn-ing, cognition, innovation etc.) none, exceptthe dynamic capability perspective, specificallyfocuses on how firms can change their valuableresources over time and do so persistently. Thisis why the perspective is attracting increasingattention. Increasing numbers of journal articles,special issues and conference presentationshave been devoted to dynamic capabilities,and hence we believe this is a good time totake stock of this literature. By pausing toreview where we are with this construct, wehopefully can provide some guidance as to howscholars can progress these ideas throughfurther empirical and conceptual develop-ment, and through the development of useableprescriptions for executives.

We make several contributions in thispaper. First, we draw from the literature thenecessary elements allowing us to develop athorough understanding of what the dynamiccapability perspective is about. This allows usto highlight what is within its scope and whatis beyond it. Secondly, we review some of theinconsistencies in the literature and offer somesuggestions. We emphasize that dynamiccapabilities do not equate with sustainablecompetitive advantage and that ‘dynamic’ refersto the environment rather than the capability.Thirdly, we explain that dynamic capabilitiesand their antecedents are different constructs,and we provide a list of the main external andinternal ‘enablers and inhibitors’ which impacton the deployment of dynamic capabilities.Fourthly, we critically evaluate the utility of

the concept to the field of strategic manage-ment and, finally, we synthesize the literatureand our thinking in a model that focuseson the position of dynamic capabilities in thevalue creation process.

The figure allows us to consider dynamiccapabilities in the firm value creation process.It shows the various impacts on performancethat they may have as well as indicatingmoderating variables that affect the deploy-ment of dynamic capabilities. Our synthesisof the literature also leads us to the view that,although there have been theoretical advancesin this field, that are still rather too manyincompletely answered or unanswered ques-tions. This reduces the field’s ability to impactmanagement practice. We identify five keyquestions at the end of the paper which couldbenefit from some further theoretical andempirical research. We conclude that a dynamiccapabilities perspective provides a valuablefocus on change processes within the firm.However, owing to a lack of empirical workand problems in deriving managerial pre-scriptions from the perspective, it currentlyhas limited utility.

An Overview of the Origin of the Dynamic Capability Perspective

Teece et al.’s (1990) working paper is probablythe first contribution developing explicitly thenotion of dynamic capabilities. They wrote(1990, 11) that ‘our view of the firm is some-what richer than the standard resource-basedview ... it is not only the bundle of resourcesthat matter, but the mechanisms by whichfirms learn and accumulate new skills andcapabilities, and the forces that limit the rateand direction of this process’. These ideaswere first formally published in 1994 byTeece and Pisano. They explained that theRBV was not able to provide explanations asto how some successful firms demonstrated‘timely responsiveness and rapid and flexibleproduct innovation, along with the manage-ment capability to effectively coordinate andredeploy internal and external competences’

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© 2009 The Authors 31Journal compilation © 2009 Blackwell Publishing Ltd and British Academy of Management

(Teece and Pisano 1994, 537). They pointedout that it is essential to consider the changingnature of the external environment and hencethe role of strategic management, which isprincipally about ‘adapting, integrating andreconfiguring internal and external organiza-tional skills, resources and functional compe-tencies toward the changing environment’(1994, 537). Their argument derived from arealization that many once successful firmswere struggling or failing as their environ-ments changed; they were unable to adaptsuccessfully (Harreld et al. 2007). The 1990and 1994 work was then elaborated upon inTeece et al. (1997) when they explicitly arguedhow the dynamic capability view could over-come the limitations of the RBV. They thendefined dynamic capabilities as ‘the firm’sability to integrate, build, and reconfigureinternal and external competences to addressrapidly changing environments’ (1997, 516).

While Teece and Pisano could be seen to bethe instigators of the dynamic capabilitiesperspective, their work extends Nelson andWinter’s (1982) An Evolutionary Theory ofEconomic Change, which addressed the roleof routines and how they shape and constrainthe ways in which firms grow and cope withchanging environments. Both Teece et al.(1997) and Nelson and Winter (1982) take anefficiency approach to firm performance ratherthan a privileged market position approach(the latter being the underpinning for Porter’s(1980) theory of competitive advantage).They also both emphasize internal factors ofthe firm rather than external factors as sourcesof competitive advantage. Also like Nelsonand Winter (1982), Teece et al. (1997) high-light the importance of path dependencies,and the need to reconfigure a firm’s resourcesto enable the firm to change and evolve.

Unsurprisingly, because the dynamiccapability perspective is ultimately aboutunderstanding a firm’s survival and growth,it inevitably draws from a range of theoreticalperspectives, not just evolutionary economics.The approach also builds on the work ofSchumpeter (1934) on processes of creative

destruction and innovation-based competition,Cyert and March’s (1963) work on the behav-ioural aspects of firms, Williamson (1975,1985) on markets and hierarchies and assetspecificity, and Teece (1982) and Rumelt(1984) on the role of firm-specific assets andisolating mechanisms.

Finally, to close this section, we should liketo address the relationship of the dynamiccapability perspective to the RBV. As mentionedin the Introduction, the dynamic capabilityview shares similar assumptions to the RBV,and it can be considered as an extension ofRBV thinking, as can other related theories,notably the knowledge-based view (Grant, 1996)and the core competence perspective (Prahaladand Hamel, 1990). They all consider thefirm to be a bundle of heterogeneous andpath-dependent resources, and they all addressthe way in which this allows a firm to generatesustainable competitive advantage (Lockettand Thompson 2001). To use Hoskissonet al.’s (1999) expression, they are all on thesame side of the pendulum and their founda-tions can be traced back to Penrose (1952,1959) and her theory of the growth of thefirm.

There are a number of publications thatexplore the link between Penrose and theRBV (e.g. Augier and Teece 2007; Kor andMahoney 2004; Lockett 2005; Lockett andThompson 2004; Pitelis 2007) and any reviewof the dynamic capabilities perspective shouldaddress the contribution of Penrose’s ground-breaking ideas.

As summarized by Lockett (2005, 85),Penrose considered firms as ‘administrativeorganizations that are collections of hetero-geneous productive resources that have beenhistorically determined’. From this definition,the inextricable link between Penrose’s workand the RBV is clear. The basic assumptionsare the same. Could the same be asserted forthe dynamic capability perspective? Penroseemphasizes that value creation does not comefrom the possession of the resources but fromtheir use, and how much value is createdwould depend on how these resources are



deployed, i.e. how they are combined withinthe firm. She also argues that, to grow, firmsneed to keep developing their expertise and toinnovate, and that managers need to haveentrepreneurial skills rather than managerialskills: ‘an entrepreneurial competence is afunction of imagination whereas a managerialcompetence is largely practical execution’(Lockett 2005, 95). As we will see later, thiswould suggest that managerial skills allowfirms to run an existing firm, but they are notsuited to change and to the creation of advan-tage. Finally, she suggests that managers arethe ultimate constraint to the growth of a firm,as managers are limited by their knowledgeof their firm’s resource base and theirunderstanding of their external environment(Lockett and Thompson 2004). As we havesummarized in the Introduction, and as weshall see in more detail in what follows, theseideas are pertinent to the dynamic capabilityperspective, and hence the importance of thelegacy of Penrose needs to be acknowledged(Augier and Teece 2007; Lockett 2005).

Defining and Understanding Dynamic Capabilities

As explained in the Introduction, to sustaintheir competitive advantage, firms need torenew their stock of valuable resources as theirexternal environment changes. Dynamiccapabilities allow firms to effect these ongoingchanges. As Winter (2003) explains, dynamiccapabilities govern the rate of change of afirm’s resources and notably its VRIN resources.Those VRIN resources, i.e. the firm’s resourcebase, enable a firm to achieve sustained com-petitive advantage. Here, in line with Barney(1991) and Helfat et al. (2007), a resource isdefined in its broad sense, and hence itincludes activities, capabilities, etc., whichallow the firm to generate rents. If a firmpossesses VRIN resources but does not useany dynamic capabilities, its superior returnscannot be sustained; without dynamic capa-bilities, a firm’s returns may be short livedif the environment exhibits any significant

change. Dynamic capabilities allow firmscontinually to have a competitive advantageand may help firms to avoid developing corerigidities which inhibit development, generateinertia and stifle innovation (Leonard-Barton1992). Core rigidities are the flipside of VRINresources: they are resources that used to bevaluable but have become obsolete and inhibitthe development of the firm. In other words,they are resources that have not been appro-priately adapted, upgraded or restructuredthrough dynamic capabilities. We discuss thislater in the section on dynamic capabilitiesand competitive advantage, and we now proceedto explore differing definitions of dynamiccapabilities.

Definitions

Since Teece et al.’s (1997) original contribu-tion, many authors have offered their owndefinitions of dynamic capabilities. They are,as can be seen below, adaptations of Teeceet al.’s original definition: ‘the firm’s abilityto integrate, build, and reconfigure internaland external competences to address rapidlychanging environments’ (Teece et al. 1997,516). A few examples are as follows.

• Dynamic capabilities are ‘The firm’sprocesses that use resources – specificallythe processes to integrate, reconfigure, gainand release resources – to match or evencreate market change. Dynamic capabilitiesthus are the organizational and strategicroutines by which firms achieve newresources configurations as markets emerge,collide, split, evolve and die’ (Eisenhardtand Martin 2000, 1107).

• ‘A dynamic capability is a learned andstable pattern of collective activity throughwhich the organization systematically gen-erates and modifies its operating routinesin pursuit of improved effectiveness’ (Zolloand Winter 2002, 340).

• Dynamic capabilities ‘are those that operateto extend, modify or create ordinary capa-bilities’ (Winter 2003, 991).

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• They are ‘the abilities to reconfigure afirm’s resources and routines in the mannerenvisioned and deemed appropriate by itsprincipal decision-maker’ (Zahra et al. 2006,918).

• More recently, Wang and Ahmed (2007,35) have defined dynamic capabilities as ‘afirm’s behavioural orientation constantlyto integrate, reconfigure, renew and recreateits resources and capabilities and, mostimportantly, upgrade and reconstruct itscore capabilities in response to the changingenvironment to attain and sustain competi-tive advantage’.

• Helfat et al. (2007, 1) offer this definition:‘the capacity of an organization to purpose-fully create, extend or modify its resourcebase’.

Listing these definitions allows us tohighlight that there generally is consensusabout the dynamic capability construct. Thesedefinitions reflect that dynamic capabilitiesare organizational processes in the mostgeneral sense and that their role is to changethe firm’s resource base. The literature alsoexplains that dynamic capabilities are builtrather than bought in the market (Makadok2001), are path dependent (Zollo and Winter2002) and are embedded in the firm (Eisen-hardt and Martin 2000).

These definitions also show us whatdynamic capabilities are not. First, Winter(2003), Helfat et al. (2007) and Schreyöggand Kliesch-Eberl (2007) emphasize that adynamic capability is not an ad hoc problem-solving event or a spontaneous reaction. Itmust contain some patterned element, i.e. itmust be repeatable. Zollo and Winter (2002,340) also make the point that dynamic capa-bilities are persistent and that ‘an organizationthat adapts in a creative but disjointed wayto a succession of crises is not exercising adynamic capability’. Secondly, Zahra et al.’s(2006) and Helfat et al.’s (2007) definitionsalso clearly show that luck does not constitutea dynamic capability. They highlight that theuse of dynamic capabilities is intentional,

deliberate. Thirdly, the definitions show that,while dynamic capabilities are concerned withstrategic change, they are not a synonym forit. They are about one type of change, theintentional change of the resource base.

Finally, to end this section, these definitionshave allowed us to clarify that dynamic capa-bilities describe intentional efforts to changethe firm’s resource base. We cannot equatestrategic change or resource creation or renewalwith dynamic capabilities alone. These changesmay occur through emergent processes thathave not been deliberately deployed by man-agers (Mintzberg and McHugh 1985), or theycould result from ad hoc interventions (Winter2003) or because of luck (Barney 1991). Oneinteresting question to address in the futurewould be the extent to which new resourcesare created or renewed because of the abovefactors or because of dynamic capabilities.

In the next section, we summarize someof the typologies of capabilities that can befound in the literature. This will allow us toget a better grasp of the differences betweencapabilities and dynamic capabilities.

Typologies of Capabilities

Dynamic capabilities and capabilities areconsidered to be distinct constructs, and someauthors have proposed typologies of capa-bilities. Collis (1994) proposed four categoriesof capabilities. The first ‘are those that reflectan ability to perform the basic functionalactivities of the firm’ (1994, 145); they are thefirm resources in the broad sense. The secondcategory concerns dynamic improvements tothe activities of the firm. The third categoryis, as stated by Collis (1994), closely relatedand difficult to differentiate from the secondcategory. It is also about dynamic improvementbut specifically about being able ‘to recognisethe intrinsic value of other resources or todevelop novel strategies before competitors’(Collis 1994, 145). Both Collis’s second andthird categories are dynamic capabilities (inview of Teece et al.’s (1997) definitions). Theyrelate to the modification and the creation and



extension of the resource base. The fourthcategory is labelled ‘higher order’ or ‘meta-capabilities’, and it relates to learning-to-learn capabilities. Collis (1994) also states thatmeta-capabilities can go on ad infinitum; thereis a kind of infinite wave of capability to renewthe capability that renews the capability, etc.He also suggests that ultimately to outperformcompetitors, firms do need to deploy thesemeta-capabilities: ‘the capability that winstomorrow is the capability to develop thecapability to develop the capability thatinnovates faster (or better), and so on’ (Collis1994, 148).

Winter (2003) proposes that there are zero-level capabilities, also called operational orordinary capabilities, which he defines asthose that permit the firm to earn a living inthe present. They are Collis’s (1994) firstlevel, in other words the extant resource base.Then he explains that there are first-levelcapabilities which modify and change zero-level capabilities. These are dynamic capa-bilities. He also suggests, similarly to Collis(1994), that there are higher capabilities whichoperate on the first level capabilities. So bothCollis (1994) and Winter (2003) extend Teeceet al’s original formulation to distinguishbetween three main levels of capability.Danneels (2002) and Zahra et al. (2006) alsouse similar typologies.

Definitions: Some Sources of Confusion

Before proceeding we should like to commenton some of the sources of confusion in thedynamic capabilities literature and to makesome observations about the term ‘dynamiccapabilities’ itself. The two words making upthe expression dynamic capabilities are some-times interpreted differently. To understandthe confusion, it is worth considering eachword in turn.

First, what does the noun ‘capabilities’means in the expression dynamic capabilities?The literature is clear that capabilities areprocesses. This is not a source of misunder-standing; the problem may lie in the fact that

‘capability’ in ‘dynamic capability’ shouldnot be separated from the adjective ‘dynamic’.Expressed differently the easiest way maybeto think about this is to forget what a capabilityis, as normally defined in the RBV, and not todecompose the expression into two words butto see it as one. A dynamic capability is not acapability in the RBV sense, a dynamic capa-bility is not a resource. A dynamic capabilityis a process that impacts upon resources.Dynamic capabilities are about developing themost adequate resource base. They are futureoriented, whereas capabilities are aboutcompeting today, and they are ‘static’ if nodynamic capabilities are deployed to alterthem. This question about the meaning of‘dynamic’ and ‘capabilities’ is not merely asemantic problem. If, as more contributorsagree, dynamic capabilities consist of repeatedprocesses that have evolved through time, thissuggests that dynamic capabilities are in onesense quite stable phenomena. Similarly, theRBV focuses our attention on resources thatare stable and enduring sources of advantage.If dynamic capabilities act upon the resourcebase, we have a stable phenomenon (the dynamiccapability) impacting on another stablephenomenon (the resource base). Thus thedynamism does not consist in either the dynamiccapability or the resource base. The ‘dynamism’relates to how the resource base is changedin a dynamic environment by the use of dynamiccapabilities. Put differently, it means thatthe dynamism consists in the interaction ofthe dynamic capability and resource base,allowing the modification of this resourcebase.

In the RBV, capabilities are either processesby which the resources are utilized (Amit andShoemaker 1993) or they are resources in thegeneral sense. Following Barney (1991),capabilities are a type of resource and henceare included in his broad definition ofresources. A valuable resource base (and hencecapabilities) allows a firm to earn a living inthe present, i.e. they are Winter’s (2003) oper-ating capabilities or zero-level capabilities orZahra et al.’s (2006) substantive capabilities.

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Dynamic capabilities are processes that alterthat resource base.

Secondly, what does the adjective ‘dynamic’relate too? Various papers offer differentinterpretations. ‘Dynamic’ sometimes refers toenvironmental dynamism. This is incorrect,because dynamic capabilities can operate inrelatively stable environments (we revisitenvironmental dynamism later in the discus-sion section). ‘Dynamic’ can relate to thecapabilities themselves, i.e. they are capabilitiesthat are dynamic, capabilities that changethemselves over time. This is also incorrect. Thiscomes from the confusion between dynamiccapabilities and capabilities as resources(or operating capabilities, as we saw above).‘Dynamic’ can refer to change in the resourcebase, to the renewal of resources. We shouldargue that this is the correct definition.

Examples of Dynamic Capabilities

The review so far shows that whateverdefinitions of dynamic capabilities one adheresto, there is a core element: the role of dynamiccapabilities is to impact on the firm’s extantresource base and transform it in such a waythat a new bundle or configuration of resourcesis created so that the firm can sustain orenhance its competitive advantage. The valueof dynamic capabilities derives from theiroutputs, i.e. the creation of a new set ofvaluable resources. In other words, a dynamiccapability that does not result in the creationof resources that allow the firm to maintain orenhance its sustainable competitive advantagewould not be valuable.

As shown by the definitions, there aredifferent types of dynamic capabilities. Someare used to integrate resources, some toreconfigure resources; some are about creat-ing new resources, while others are aboutshedding resources. Specifically, Bowman andAmbrosini (2003) building on Teece et al.(1997) explain that dynamic capabilities com-prise four main processes: reconfiguration,leveraging, learning and creative integration.Reconfiguration refers to the transformation

and recombination of assets and resources,e.g. the consolidation of central supportfunctions that often occurs as a result of anacquisition. Leveraging involves replicating aprocess or system that is operating in onebusiness unit into another, or extending aresource by deploying it into a new domain,for instance by applying an existing brand toa new set of products. Learning allows tasks tobe performed more effectively and efficientlyas an outcome of experimentation, reflectingon failure and success. Finally, creativeintegration relates to the ability of the firm tointegrate its assets and resources, resulting ina new resource configuration.

While these processes help us understandhow dynamic capabilities operate, we stillneed to develop a better understanding of boththe content and process of dynamic capabilities(Moliterno and Wiersema 2007). This beingsaid there are several empirical and conceptualpapers that have tried to explain precisely howsome specific dynamic capabilities are used.Eisenhardt and Martin (2000) are strong intheir assertions that dynamic capabilities, whileoften described in a vague manner, ‘actuallyconsist of identifiable and specific routines’(2000, 1107). They explain that examples canbe found throughout the management liter-ature. They show how acquisitions, alliancesand product innovation can be seen to be‘real’ dynamic capabilities, as they permitthe renewal and reconfiguration of a firm’sresources. They also add ‘just as there arebetter ways to hit a golf ball or ski a mogulfield, there are more or less effective ways toexecute particular dynamic capabilities’ (2000,1108), suggesting that dynamic capabilitiesmay not necessarily have the intended effector a positive outcome. Likely reasons for thisare the uncertainty in predicting the impact ofa dynamic capability on the resource base andthe uncertainties in the external environment.We address these issues later in the paper.

The growing literature on dynamic capa-bilities has given us an expanding set of specificexamples. Studies tend to focus on specificdynamic capabilities; there are few studies



that explore (a) whether dynamic capabilitiesalways operate singly, (b) whether and howthey can operate in combination, and (c)which dynamic capabilities might be moresuitable, depending on each firm’s situation.

Here are a few examples of empiricalstudies. Helfat (1997) argued, using the caseof the US petroleum industry, that R&D wasa dynamic capability. She showed that R&Dactivities were enhanced to respond to changesin market prices and examined the role ofcomplementary resources in the effectivedeployment of R&D. Karim and Mitchell(2000) examined the acquisition process asa dynamic capability. They explained thatacquisitions allow firms to reconfigure theirmix of resources, that they are a means throughwhich firms modify their resource base overtime, allow them to overcome failure andexploit opportunities in their environment.Danneels (2002) studied how product innova-tion leads over time to organizational renewal,and hence it could be considered to be adynamic capability. This argument is based ona study of five high-tech firms, which showedthat new product development was connectedto the development and renewal of firm-levelcompetences and not only to the expansion ofa firm’s portfolio of products. Zahra and George(2002, 188) stated that absorptive capacitywas ‘a dynamic capability that influences thefirm’s ability to create and deploy the know-ledge necessary to build other organizationalcapabilities’; they explain that these capacitiesallow firms to create and exploit new knowledgeand give them the flexibility to change andcompete in dynamic and changing markets.Karim’s (2006) research showed that organi-zational structure reconfiguration was a dynamiccapability; by reconfiguring their businessunits, firms can recombine their resources andadapt to environmental changes. To give a finalexample, Moliterno and Wiersema (2007),using a data set of professional baseballfranchises, argued that resource divestmentwas a dynamic capability. They concentratedon explaining the mechanisms of the ‘humanresource divestment’ dynamic capability and

suggested that managers’ judgement, percep-tions and the ‘contextual feedback in the formof firm performance relative to aspirations’(2007, 1085) were critical to the deploymentof this capability.

Searching and Sensing as Dynamic Capabilities

Before concluding this section and discussingthe methodological issues associated withresearching dynamic capabilities, we shouldlike to comment on other types of dynamiccapabilities described in the literature. Dynamiccapabilities are sometimes argued to includesearch, i.e. identifying opportunities and threats,or the ability to sense changing customerneeds, technological opportunities and com-petitive developments (Augier and Teece 2007;Teece 2007). While there is no doubt thatthese are important elements in dynamiccapabilities, as we explain in the section onenablers and inhibitors of dynamic capabilities,these factors are not dynamic capabilities inand of themselves; they are managerial andorganizational processes that underpin andenable the deployment of dynamic capabilities(Helfat et al. with Maritan 2007). They are, touse Teece’s (2007) wording, the micro founda-tions of dynamic capabilities.

From the initial formulation of dynamiccapabilities, which were processes that acteddirectly to re-shape and refresh the resourcesof the firm to enable it to sustain advantage inchanging environments, a third level ofcapability which changes the firm’s dynamiccapabilities was identified by Collis (1994)and Winter (2003). We can augment theselevels with additional constructs: the enablersor inhibitors which impact the successfuldeployment of dynamic capabilities. Weaddress these later in the paper.

Methodological Issues

To conclude this section on examples ofdynamic capabilities, and before we examinethe link between dynamic capabilities and

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competitive advantage, we should like to com-ment on the current state of empirical studiesin the field and the main challenges facingresearchers. We address this issue in the dis-cussion when assessing the utility of the concept.

Pablo et al. (2007, 690) emphasize that‘while the dynamic capabilities framework isdrawing support and increased validity byresearchers, empirical studies of dynamiccapabilities remain relatively rare’. This com-ment is easily understood, as arguably themost influential dynamic capability articles,those by Teece et al. (1997) and Eisenhardtand Martin (2000), use illustrative examplesderiving from data that, while pertinent, werenot collected purposively to understanddynamic capabilities.

There is an increasing range of conceptualelaboration about dynamic capabilities butempirical support is limited. This commentapplies equally to the ‘static’ RBV. This maybe due to a range of factors. First, as noted byNewbert (2007), it is hardly surprising thatthere is little empirical work, as the theoreticalwork did not start until Teece et al. (1997).Traditionally, research starts with firstdeveloping the theory, then developing somehypotheses or propositions; finally, thoseare empirically tested before managerialprescriptions are developed. Secondly, theremay also be a lack of evidence, because thesecapabilities have been poorly specified, andhence researchers may not know what to lookfor. Thirdly, there may be little empiricalresearch, because it is a concept ‘which hasthus far proven largely resistant to observationand measurement’ (Kraatz and Zajac 2001,653). Quantitative research studies easilyoutnumber qualitative studies in the strategicmanagement field. While our review ofexamples is far from being exhaustive, it isinteresting to note that, with the exception ofDanneels (2002), the examples put forwardare either conceptual ideas or derived fromsecondary data and are essentially results ofquantitative studies. They also by and largedescribe broad organizational processes;they do not delve into the detailed, micro

mechanisms of how these capabilities aredeployed or how they ‘work’. Where we arelooking for differences across firms, forevidence of idiosyncratic and intangiblephenomena (Rouse and Daellenbach 1999),we might question whether quantitative methodsare particularly appropriate. Quantitativestudies usually involve statistically valid largesample sizes which result in quantitativelyaggregated responses in order to advancetheory via the inference of common trends(Armstrong and Shimizu 2007), and it may bedifficult to collect any longitudinal data viaarchival sources or structured surveys (Danneels2007). Quantitative methods often involve theuse of proxy variables which may only capturetangible and visible aspects of a phenomenon.Hence, as suggested by Lockett and Thompson(2001, 743), ‘it may be necessary to sacrificesome of the generality of quantitative investi-gation for a more qualitative attention todetail’, and they conclude that the best optionmay be to use a plurality of methods.

Qualitative, smaller sample studies are likelyto be more appropriate for understanding thesubtlety of resource creation and regenerationprocesses. To understand fully firm-specificresources, their context and how they werecreated or renewed in practice requires fine-grained investigations and to obtain rich andcontextualized data qualitative fieldwork(Godfrey and Hill 1995; Rouse and Daellenbach1999). These studies, however, are typicallytime consuming and demanding in terms offunding, access to firms and analysis. Danneels’(2008, 536) comment that ‘notwithstanding itscurrent popularity, the notion of dynamiccapabilities is abstract and intractable’ mayremain true if we are unable to increase thenumber of qualitative field investigations.

Dynamic Capabilities and Value Creation

Dynamic Capabilities and Competitive Advantage

The literature is divided about the linksbetween dynamic capabilities and competitive



advantage (Cepeda and Vera 2007). Someworks and notably Teece et al. (1997) makean explicit link between dynamic capabilityand advantage and, following Teece et al.’s(1997) lead, Griffith and Harvey (2006, 597)argue that ‘a global dynamic capability is thecreation of difficult-to-imitate combinationsof resources [...] that can provide a firm com-petitive advantage’ and Lee et al. (2002, 734)suggest that ‘dynamic capabilities are con-ceived as a source of sustainable advantage inShumpeterian regimes of rapid change’.While many similar definitions are used in theliterature, the problem is that these definitionsare often tautological. As noted by Cepeda andVera (2007, 427), using a similar argument toPriem and Butler’s (2001), ‘if the firm has adynamic capability, it must perform well,and if the firm is performing well, it shouldhave a dynamic capability’.

Others have also linked dynamic capabilitiesto competitive advantage but have assertedthat this link was indirect. For instance Zott(2003, 98) argues that ‘dynamic capabilitiesare indirectly linked with firm performance byaiming at changing a firm’s bundle of resources,operational routines, and competencies, whichin turn affect economic performance’. Similarly,Bowman and Ambrosini (2003), followingthe RBV, suggest that the VRIN resource baseis directly linked to rents, but as dynamiccapabilities are one step removed from rentgeneration, their effect is indirect.

Finally, Helfat et al. (2007) have decoupledthe notion of dynamic capabilities and per-formance and argue that ‘dynamic capabilitiesdo not necessarily lead to competitive advan-tage’ (2007, 140). They explain that, while thedynamic capabilities may change the resourcebase, this renewal may not be necessarilyvaluable, it may not create any VRIN resources,i.e. the new set may either only give com-petitive parity or it may be irrelevant to themarket. Thus the effect of dynamic capabilitieson advantage and performance may benegative. From this, we can therefore deducethat four different outcomes may result fromthe deployment of dynamic capabilities. First,

they can lead to sustainable competitiveadvantage if the resulting resource base is notimitated for a long time and the rents aresustained. Second, they can lead to temporaryadvantage. Rindova and Kotha (2001, 1275)contend that in ‘hypercompetitive environments,competitive advantage is transient rather thansustainable’, competitive advantage can onlybe enjoyed for a short period of time. Third,they may only give competitive parity if theireffect on the resource base simply allows thefirm to operate in the industry rather than tooutperform rival firms. Finally, the deploy-ment of dynamic capabilities may lead to failureif the resulting resource stock is irrelevant tothe market.

While Helfat et al. (2007) disconnectdynamic capabilities from advantage, theysuggest that the performance of dynamiccapabilities should be evaluated, and theypropose two measures to do so. Those per-formance yardsticks are evolutionary fitness,which ‘refers to how well the capability enablesthe firm to make a living by creating, extend-ing, or modifying its resource base’ (1997, 7),and technical fitness, which is about thequality dimension of capability performance.It captures ‘how effectively a capabilityperforms its intended function’ (1997, 7). Theyalso add that technical fitness together withmarket demand and competition influenceevolutionary fitness, thus technical fitnessdoes not automatically lead to evolutionaryfitness (hence the need to decouple dynamiccapabilities and competitive advantage). Theyare thus invoking the common managerialdistinction between ‘doing the right things’(evolutionary fitness) and ‘doing things right’(technical fitness).

Further, if there is not a direct link betweendynamic capabilities and competitive advant-age, it can be suggested that dynamiccapabilities do not have to be firm specific.Eisenhardt and Martin (2000, 1106) explainthat the ‘functionality of dynamic capabilitiescan be duplicated across firms, their value forcompetitive advantage lies in the resourceconfigurations that they create, not in the

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[dynamic] capabilities themselves’ and ‘whiledynamic capabilities are certainly idiosyncraticin their details, the equally striking observ-ation is that specific dynamic capabilitiesalso exhibit common features’ (2000, 1108).They conclude that dynamic capabilities areequifinal, substitutable and fungible: manyfirms will have similar dynamic capabilities.Smart et al. (2007) argued that there was someevidence of network level dynamic capabili-ties in the biotech industry and Lampel andShamsie (2003) demonstrated that, at leastin the Hollywood movie industry, there wasindeed some evidence of industry dynamiccapabilities, i.e. dynamic capabilities that aresimilar across firms.

The Cost of Dynamic Capabilities

Dynamic capabilities are directed at the crea-tion of future resources, which means thatthey are typically vulnerable to short-termpressures to trim costs, because whether theirimpact was valuable can only be assessed expost. Zollo and Winter (2002) and Winter(2003) caution that the maintenance ofdynamic capabilities is expensive, and that anad hoc approach may be less costly: ‘dynamiccapabilities typically involve long-termcommitments to specialized resources ... bycontrast, the costs of ad-hoc problem solvinglargely disappear if there is no problem tosolve.’ (Winter 2003, 993). Lavie (2006) andPablo et al. (2007) also address the cost ofdynamic capabilities by suggesting thatdynamic capabilities involve substantialcognitive, managerial and operational costs andthat deploying dynamic capabilities requireshigh levels of time and energy from committedmanagers. Further, if managers misperceivethe situation of the firm, they may trigger in-appropriate dynamic capabilities. For example,they may decide to address a change in themarket by reconfiguring and recombining someresources, e.g. consolidating manufacturing,eliminating a large number of smaller brandsfrom the portfolio. However, it could be thatthe appropriate response would be to sustain

the brand portfolio and to leverage their branddevelopment capabilities. Hence, because oftheir misperception of the competitive land-scape, they would have deployed dynamiccapabilities that do not enhance or maintainperformance. The firm will then experienceboth the costs of the dynamic capabilities aswell as the negative consequences of theirdeployment (Zahra et al. 2006). This leads usback to our discussion on competitive advan-tage and the point that, although dynamiccapabilities ‘are developed in order to realizestrategic advantages, their development doesnot ensure organizational success’ (Zahra et al.2006, 926). This also illustrates that we needto understand what triggers the deployment ofdynamic capabilities. We turn to this issue next.

Internal and External Enablers and Inhibitors of Dynamic Capabilities

In their original work, Teece et al. (1997)explained that dynamic capabilities are pro-cesses shaped by positions and paths. We havedescribed the processes earlier. They are themechanisms by which the dynamic capabilitiesare put in use (Helfat et al. with Maritan 2007).Those processes include co-ordination andintegration, learning and reconfiguration.Positions and paths are the internal andexternal forces enabling and constrainingdynamic capabilities. ‘Positions’ are twofold.The internal position relates to the firm’s assetsi.e. its stock of technological, complementary,financial, reputational, and structural assets.The external position refers to the firm vis-à-vis its institutional environment and its markets.Teece et al. (1997) explain that the firm’sposition will have a bearing on the firm’s stra-tegic posture and how competitive advantagecould be gained.

‘Paths’ are about history and acknowledg-ing that history matters, that ‘bygones are rarelybygones’ (Teece et al. 1997, 522) and that thefirm’s past and present guide and constrainits future. We now review this range of internaland external factors that trigger dynamiccapabilities.



External Factors

The majority of the work on dynamic capa-bilities and the original work of Teece et al.(1997) assert that dynamic capabilities werenecessary to deal with rapidly changingenvironments. However, Eisenhardt and Martin(2000) argued that they could also be used inmoderately changing environments. They pro-posed that, in such environments, capabilities‘are detailed, analytic, stable processes withpredictable outcomes’ (2000, 1105), whereasin high-velocity environments ‘they are simple,highly experiential and fragile processes withunpredictable outcomes’ (2000, 1105). Thismeans dynamic capabilities can vary with levelsof dynamism in the external environment.This has led Aragon-Correa and Sharma (2003)to argue that we should work towards a con-tingency perspective on dynamic capabilitiesand recognize that environmental featuressuch as uncertainty, complexity and muni-ficence influence the deployment of dynamiccapabilities.

If we acknowledge that dynamic capabilitiescan operate in relatively stable environments,some activities that are directed at theincremental development or enhancement ofexisting resources could be considered dynamiccapabilities. For instance, we could envisage asituation where a firm embarks on a series ofadvertising campaigns to develop an existingbrand. Owing to the perceived stability in thisfirm’s environment, there is a strong belief,based on past experience, that advertising willhave a positive and predictable impact on thebrand. Similarly, firms that invest in R&D doso in the expectation that resources advan-tages in the form of superior product designsor productive processes will result. If these‘work’, the outcome is a change in the resourcebase, and we can also see how these dynamiccapabilities can be seen as being stable andrepeated performances.

Winter (2003) also contends that the paceof change in an industry acts as a contingencyfactor in the decision to develop and deploydynamic capabilities. Aragon-Correa and Sharma

(2003) also add that exogenous factors affecteach firm differently, as they are moderated bymanagerial perceptions.

Finally, it is worth re-emphasizing that‘history matters’ for dynamic capabilities andhas a critical influence. Adding to the strengthof the theoretical argument, Madhoc andOsegowitsch (2000) have shown empiricallyin their study of the international biotech-nology industry that path dependence wasan important phenomenon in the dynamiccapability perspective. Their study reveals thatthe country of origin of companies is a factorthat shapes firms’ history, their paths andpositions and, as a result, impact on thedynamic capabilities they apply. They explainthat the firms’ country of origin shapes ‘firms’experiences, and consequently the knowledgeand capabilities they acquire’ (2000, 326).They illustrate this by explaining how theemergence of the US biotech industry can beexplained by strong links between universitiesand industries, entrepreneurship, availabilityof risk capital and governmental support, con-textual factors that were not present to thesame extent in other countries.

All this raises an interesting question aboutthe nature or form of dynamic capabilities.Can a dynamic capability lie dormant until itis required? If it can, then there may be someeffect on the performance of the dynamiccapability if it has been unused for a period oftime; or if the dynamic capability can onlytruly exists ‘in action’, then we should expectthe organization to be in a continual state ofchange or ‘becoming’. Maybe some dynamiccapabilities can be ‘stored’, e.g. the ability toreconfigure, whereas others must continuallybe performed, e.g. R&D. This also suggeststhat, although a dynamic capability could existin a stored or potential state, its effectivenessmay degrade if the time lags between itsdeployments mean that the firm context is soaltered that what was effective in the past isless effective in the present, even though thedynamic capability itself might be unchanged.Repeated past performance of a dynamiccapability should not only improve its

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effectiveness through learning, it should allowfor it to adapt incrementally to the changinginternal and external context of the firm.

Internal Factors

Managers. Many scholars (e.g. Adner andHelfat 2003; Eisenhardt and Martin 2000;Helfat et al. 2007; Tripsas and Gavetti 2000)highlight the key role managers play in theirfirm’s ability to adapt to new circumstances.They suggest that senior managers are criticaldeterminants in the deployment of differentforms of dynamic capability. To quote Teece(2007, 1346) ‘dynamic capabilities reside inlarge measure with the enterprise’s top manage-ment team’ but, because of path dependencythese dynamic capabilities ‘are impacted bythe organizational processes, systems, andstructures that the enterprise has created tomanage its business in the past’.

Harreld et al. (2007) suggest that one ofthe core aspects of the managerial role isto develop the firm’s dynamic capabilities.They argue that managers need to be able toaccomplish two tasks: ‘first, they must be ableto accurately sense changes in their com-petitive environment, including potentialshifts in technology, competition, customers,and regulation’ (2007, 24) and ‘second, theymust be able to act on these opportunities andthreats; to be able to seize them by reconfigur-ing both tangible and intangible assets to meetnew challenges’ (2007, 25). Their capabilityto do so depends on their motivation, skillsand experiences (Zahra et al. 2006).

This emphasis on the role of managers alsomeans that what managers perceive theirenvironment to be like (Adner and Helfat2003) and their acumen (Conner 2007) arecritical factors in understanding why and howdynamic capabilities are deployed. In otherwords, how managers interpret environmentalissues, whether they perceive uncertainty andcomplexity, will affect their decisions andactions (Aragon-Correa and Sharma 2003).Aragon-Correa and Sharma (2003, 77) explainthree forms of uncertainty: ‘environmental

state uncertainty occurs when managersperceive their general business environment orone of its components to be unpredictable;organizational effect uncertainty occurs whenmanagers have difficulty understanding orpredicting the impact of changes in thegeneral business environment on their organi-zations; and decision response uncertaintyoccurs when managers perceive an inabilityor risk in predicting the consequences ofindividual decisions’. As far as complexity isconcerned, they explain that ‘the greater thenumber of factors in the general businessenvironment a manager perceives she or hemust deal with, and the greater the differencesamong those factors, the more complex thebusiness environment’ (Aragon-Correa andSharma 2003, 79). Depending on how man-agers perceive these uncertainties in theirenvironments, they are more or less likely todeploy dynamic capabilities. Aragon-Correaand Sharma (2003) suggest that firms withsimilar characteristics will deploy differentdynamic capabilities because of their managers’perceptions. For instance, managers whoperceive the environment to be complex mayfind it difficult to know which dynamiccapability to use and may be unwilling to deployany. In other words, they suggest that dynamiccapabilities are contingent on both environmentdynamism and on managers’ interpretationsof their business environment. This impliesthat the key issue here is not just the role ofmanagers in the deployment of dynamiccapabilities. It is their judgement about whatdynamic capabilities to deploy, and how andwhere to deploy, which is critical to the ultimatesuccessful performance of dynamic capabilities.

To reinforce this, we can note that Moliternoand Wiersema (2007, 1081) also assert thatmanagers need to ‘take as a given theirbounded rationality, and can fully expect thattheir history, their expectations, and theprobabilistic judgments that they make whenscanning the organizational context will havean impact on the way they manage the firm’sportfolio of resources’. Tripsas and Gavetti(2000) illustrated the role of managerial



cognition in dynamic capabilities with theirexposition of how Polaroid’s managers copedwith the arrival of digital imaging, and howmanagers relied on cognitive simplificationand past experience to process information. Intheir empirical study, Moliterno and Wiersema(2007) put forward that discrepancies betweenperformance aspirations and perceived per-formance attainment also triggered dynamiccapabilities. So, internal pressure to changeor desire to change due to managers’ dis-satisfaction with current returns seems to matteras much as any other factors (Ambrosini et al.forthcoming). Managerial dispositions withrespect to the deployment of dynamic capa-bilities are also influenced by the past and,more critically, how past experience will haveshaped managers’ perceptions. The managerialcognition field has developed rich insightsinto how managers’ cognitive limitations impacttheir ability to sense and interpret the environ-ment (Easterby-Smith et al. 2000; Ford 1985);and, as seen earlier, misinterpretation willnegatively affect the decision to deploy dynamiccapabilities. This reinforces the previousargument that both the actual environment andmanagers’ perception matter when trying tounderstand whether and how dynamic capa-bilities are deployed.

Positions and paths. Positions and paths asnoted relate to both external and internalfactors. As far as internal factors are concernedtwo aspects are widely argued to play criticalroles in the effective deployment of dynamiccapabilities: learning and the existing set ofresources. Eisenhardt and Martin (2000)explain that path-dependent learning mecha-nisms shape the creation and development ofdynamic capabilities. They specifically reporton the importance of practice and experiencein the evolution of dynamic capabilities. Zolloand Winter (2002) add that a ‘knowledgeevolution cycle’ enables firms to change theway they do things. They propose that ‘dynamiccapabilities emerge from the co-evolution oftacit experience accumulation processes withexplicit knowledge articulation and codification

activities’ (2002, 344). It is interesting to notethat this study is one of the very few to focuson the creation of dynamic capabilities; as wehave illustrated, most focus on what dynamiccapabilities are or on the role of managers intheir deployment.

Building on Teece et al.’s (1997) principlethat the past and present influence and con-strain the future, Lavie (2006) contends thatthe existing resources of a firm, and how com-plex, causally ambiguous, embedded andinterdependent they are, will influence thetypes of dynamic capabilities that can bedeployed and their effectiveness. All thissuggests that, in most cases, both the creationof dynamic capabilities, as they are deployedthrough learning and repetition (Zollo andWinter 2002), and their usage, as they trans-form VRIN resources (Bowman and Ambrosini2003), are likely to be path dependent.

Other factors. There are other internal factorsthat have been argued to impact upon the useof dynamic capabilities. Those include socialcapital, leadership and trust. Blyler and Coff(2003, 678) argue that ‘social capital is essentialfor a dynamic capability in terms of facilitat-ing the acquisition, integration, and release ofresources’. They maintain that social capitaland notably individuals’ valuable internaland external social ties allow for informationsharing, innovation and novel ways of thinkingwhich in turn helps managers understandresource acquisition, integration and release.

Closely related to the role of managers andtheir perceptions, in his study of NCR, Rosen-bloom (2000) demonstrated that leadership,the ability to make and break commitments,to take risk and to create an organizationallearning culture were enablers of dynamiccapabilities. Salvato (2003), in his study ofModafil and Alessi, also concluded that lead-ership played a critical role in the evolution offirms and their dynamic capabilities. Buildingon these two studies, Pablo et al. (2007) offersome evidence that, in addition to leadership,trust is a dynamic capability enabler, and,specifically, they were both critical agents of

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leverage. They contend that leadership andtrust are essential in creating an organizationalclimate conducive to learning, to the use ofdynamic capabilities and to resource creationin general.

Discussion and Synthesis

In Figure 1 we draw together our review ofthe dynamic capabilities literature. The centreof the figure links the various elements inthe firm value creation process. Dynamiccapabilities directly impact the resource baseof the firm, which in turn is the source of thefirm’s competitive advantage. The literatureidentifies some of the precursors to the forma-tion of dynamic capabilities which we havelabelled DC creation processes. This is toacknowledge that dynamic capabilities donot appear as a fully formed capability; theyare typically the outcome of experience andlearning within the organization.

Dynamic capabilities impact firm valuecreation via their impact on the resource base.These impacts can result in competitive advan-tages which may be temporary or sustained,depending on the dynamism in the environment.

It is possible, then, that resource-based advan-tages might be short-lived, owing to changesin customer and/or competitor behaviour.The RBV is an explanation of why economicprofits might accrue to a firm in equilibrium.If we accept that equilibrium conditionsmight only obtain for short periods of time, itis possible to consider a firm experiencingsustained advantage in dynamic environ-ments, but not from a static resource base.Rather the dynamic capabilities enable the firmcontinually to refresh the resource stock sothat the firm can continue to ‘hit a moving target’.In this way, advantage is sustained throughthe achievement of a continuous sequenceof temporary, short-lived advantages. It canbe suggested that, owing to time lags anduncertainty, the deployment of dynamiccapabilities might not actually lead to thecreation of new resource-based advantages(Danneels 2008). Thus the ‘outcomes’ includesituations of competitive parity and evenfailure. Moreover, the maintenance of dynamiccapabilities can involve the firm in incurringconsiderable expenditure, e.g. employing post-acquisition integration specialists, R&D costs,training, etc. In addition, the opportunity costs

Figure 1. Dynamic capabilities.



of ‘regular’ staff who are diverted and dis-tracted from their normal work in times oforganizational change should be factored in toany evaluation of the contribution of dynamiccapabilities to the firm’s performance. Soeven where we might be able to attribute thecreation of new resource-based advantage tospecific dynamic capabilities, any ensuingrents must be considered alongside the costsof maintaining the capabilities (Winter 2003).

The deployment and performance ofdynamic capabilities is moderated by a varietyof internal and external variables, as depictedin Figure 1. The internal ‘paths and positions’that have a moderating effect include manage-rial behaviours and perceptions, and the pre-sence of complementary assets and resources.These internal paths and positions influencethe deployment of dynamic capabilities. Theexternal environment exerts a moderatinginfluence, particularly on the linkages betweenthe deployment of dynamic capabilities andcompetitive advantage.

Underpinning the figure is ‘time’, whichworks from left to right. This is an acknow-ledgement that the development, deploymentand outcomes of dynamic capabilities unfoldover time, and the time lags between action(deployment) and outcome clearly introducecausal ambiguity into the managerial decisionprocesses. Ambiguity is caused internallywhere there is no clear understanding of thelinks between dynamic capabilities and actualresource creation, and these uncertainties areexacerbated where there is a long lead-timebetween decisions to change the resourcestock and the resultant impacts on performance.

To avoid the problems of tautology men-tioned earlier, for dynamic capabilities to be auseful construct it must be feasible to identifydiscrete processes inside the firm that can beunambiguously causally linked to resourcecreation. However, as Figure 1 illustrates, thereis ‘many a slip twixt cup and lip’ in thedeployment of dynamic capabilities. Longtime lags between the deliberate decision todeploy dynamic capabilities and the subsequentresource stock outcomes clearly exacerbate

the problem of identification. Even where wemight expect the deployment of dynamiccapabilities to have a fairly immediate impact,the complexity and uncertainty of the internaland external environments would make itdifficult clearly to associate the change inresource stock to specific actions and processes.

Moreover, to date we have little theoreticalor empirical evidence on which to base anysuggestions as to how dynamic capabilitiescan be deliberately built. There is a view thatthese dynamic capabilities might be com-monly found within an industry, and that theymay not be differentiated across a collectionof firms. This would imply that these dynamiccapabilities might be relatively easy to build.However, and invoking an RBV perspectiveon uniqueness, we would argue that dynamiccapabilities are only likely to be similar acrossfirms if we adopt a high-level, abstractedconception of them. Feldman and Pentland(2003) distinguish between ostensive andperformative aspects of routines. The ostensiveaspect of the routine is the structure orabstract understanding of the routine, and theperformative aspect is the actual performanceof the routine (Feldman and Pentland 2003).If dynamic capabilities are indeed repeatedperformances, they are akin to high-levelorganizational routines (Collis 1994; Zott 2003).The ostensive routine, i.e. the abstract descrip-tion of the dynamic capability, might be verysimilar across competing firms, e.g. ‘we all doR&D’. However, we should expect that theperformative aspect of the routine, the dynamiccapability in practice, would display subtlebut important differences between firms. Inaddition, even where the performative capabilitywas identical across firms, the supporting andcomplementary processes and assets would bemost likely to be differentiated, thus the effectof the common capability would be variable.

If we consider the managerial utility of theconstruct, we can see some of the challengesfacing those seeking to assist and adviseexecutives in the strategic management of theirfirms. Time lags, complexity and uncertaintywould suggest we should be cautious in making

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any strong assertions about the links betweenaction and outcomes. So, informed by thedynamic capabilities perspective, what advicewould we give to managers? Would we suggestthat all firms facing a dynamic environmentneed to have dynamic capabilities? If so, canwe offer any advice about which dynamiccapabilities should be developed? Is it possibleto develop a contingency or diagnostic approachthat would have utility, e.g. ‘if the environmentlooks like this, you need dynamic capabilitiesthat look like that’. And if this were possible,what would the contingency variables be?

Dynamism in the environment can meanrapid but predictable change, or it could meanuncertainty (Aragon-Correa and Sharma 2003).This distinction is critical in the developmentof any prescriptive approach. Rapid but pre-dictable change can be addressed by well-understood change processes that are likelyto have been developed deliberately throughtime, and where the links between actionand outcomes are fairly clear, informed byreflections on repeated applications of theseprocesses in the past. These change processescould indeed be stable features of the organi-zation, and they may well appear to be similaracross firms in the same industry, as argued byEisenhardt and Martin (2000). Environmentaluncertainty presents quite different challenges.Options for executives would range fromdeciding on one course of action and stickingto it, to building a high degree of adaptivecapability (Wang and Ahmed 2007). Clearly,there are different risks with both of these.The first option runs the risk of picking thewrong course, the second may be inordinatelycostly if the firm is facing competitors whohave chosen a particular path and who have notincurred the costs of building and maintainingcapacity to adapt and flex the organization.

Figure 1 illustrates the challenges facingthose wishing to advise and influence execu-tives. Each arrow horizontally linking thestages of resource creation is moderated byinternal and external paths and positions. Asmentioned in the text, as things stand we areunclear about:

(1) how dynamic capabilities are created(2) what is the full range of dynamic capa-

bilities which exist in practice rather thantheory

(3) how these dynamic capabilities operatesingly or in combination

(4) which dynamic capabilities might be moreeffective in what kind of firm situations

(5) the extent to which newly created resourcescan be attributed to specific dynamic capa-bilities, to luck, exogenous changes, etc.

Answers to these questions would go a longway towards establishing dynamic capabilitiesas a theoretically well-founded construct andone that is managerially relevant. If we under-stand how, in practice, dynamic capabilitiesare created, this would allow us to start develop-ing guidance for managers about how theycan deliberately develop dynamic capabilities.It would also allow us to understand betterhow other factors can create new resourcesand hence provide some evidence to helpmanagers find the right solutions for their firmswhen in need of resource renewal. Answeringthese questions would also facilitate our under-standing of how contingent on the perceivedand actual environment the effective deploy-ment of certain types of dynamic capabilitiesis and, similarly, it would allow the design ofmanagerial relevant prescriptions.

Conclusion and Further Research

‘The theoretical and practical importance ofdeveloping and applying dynamic capabilitiesto sustain a firm’s competitive advantage incomplex and volatile external environmentshas catapulted this issue to the forefront of theresearch agendas of many scholars’ (Zahraet al. 2006, 917). So, the dynamic capabilityapproach is receiving more and more attention,and it focuses attention on the firm’s ability torenew its resources in line with changes in itsenvironment. This approach is seen to be anoffshoot of the RBV (Cavusgil et al. 2007; Teeceet al. 1990) as it provides some explanation asto how the current stock of VRIN resources,



upon which the RBV has focused, can beregenerated. The turbulent and changingnature of the environment suggests thatresources cannot remain static and still be val-uable. They must be continually evolving anddeveloping, otherwise firms may only be ableto be competitive in the short term. To havea persistent competitive advantage, firmsmust continue to invest in and upgrade theirresources to create new strategic growthalternatives. They must possess some dynamiccapabilities. These capabilities are organiza-tional processes that alter the resource stockby creating, integrating, recombining andreleasing resources (Eisenhardt and Martin2000; Teece et al. 1997). These dynamic capa-bilities are shaped by enabling and inhibitingvariables within and outside the firm, includingthe perceptions and motivations of managers.In this paper, we have reviewed and synthe-sized the current literature. This has allowedus to present a clear view of the scope of theconcept, what the antecedents of dynamiccapabilities are, and how the link to com-petitive advantage should be considered. Wehave also discussed the inconsistencies in theliterature and raised questions about the utilityof the concept.

There are few empirical studies in thedynamic capabilities field (Pablo et al. 2007).One of the difficulties could come from theseeming dominance of quantitative studies.Studies might infer the presence of dynamiccapabilities by examining firm performanceoutcomes. However, this approach compoundsthe problem of tautology in the literature.What we need are fine-grained case studies offirms who have sustained advantage overtime in dynamic environments. If we couldaccumulate enough case-based data, it mightbe possible to identify the more commondynamic capabilities, and generally to explorethe model in Figure 1. We should also add thatfield research would also allow researchers toaddress the micro-process question of howand why managers use dynamic capabilities(Pablo et al. 2007) and, by doing so, we couldemploy a strategy-as-practice lens (Jarzabkowski

et al. 2007; Johnson et al. 2003). The strategy-as-practice perspective is concerned with whatpeople do. It is interested in examining howand why some concrete activities could belinked to strategic outcomes. By taking such amicro approach, one might be able to obtainsome concrete evidence of what dynamiccapabilities look like in organizations, howthey are deployed, and how context mayimpact upon them. So by looking at the detailof how dynamic capabilities are deployed,we should be able to understand better thedynamic capabilities in practice and whetherand how they might differ across firms, whichcould form the basis for developing managerialprescriptions.

Much more is needed before we can havea full understanding of what dynamic capa-bilities are, how they work and whether thereare, for instance, patterns across industries orsize of firms or age of firms. Thus, there maybe opportunities to develop a contingencyapproach to dynamic capabilities.

The dynamic capabilities field has advancedconsiderably in the decade since Teece et al.’s(1997) original contribution. We believe thepriorities for the future would be to clarifysome of the concepts that seem to be open todiffering interpretations, to embark on appro-priate empirical research that would enable usto test as mentioned above, for example, howgeneric or context specific are these capabilities,and finally, we should encourage scholars tolook to integrate the dynamic capabilitiesperspective into other complementary fieldsof enquiry, e.g. innovation, knowledge manage-ment, organizational change and developmentand organizational learning. If the concept ofdynamic capabilities is to be useful for strategicmanagement as a field of study and for practi-tioners, it needs to be fully researched, and wewill need to be able to answer positively thequestions Collis was raising in 1994: ‘Wheredoes this leave organizational capabilities?And how valuable are they as sources ofsustainable competitive advantage?’ (Collis 1994,150). ‘It depends’ was his answer then. Do weknow much more now?

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Note

1 Address for correspondence: Véronique Ambrosini,Cardiff Business School, Cardiff University,Cardiff, CF10 3EU. Tel.: +44 (0)29 20876013;Fax: +44 (0)29 20874419; e-mail: [email protected]

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Véronique Ambrosini is from Cardiff BusinessSchool, Cardiff University, Cardiff, CF10 3EU,UK. Cliff Bowman is from Cranfield School ofManagement, Cranfield, Bedford, MK43 0AL,UK.

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