DYNAMIC CAPABILITIES: TOWARDS AN ORGANIZING FRAMEWORKMOHAMUD M AND SARPONG D, JOURNAL OF STRATEGY AND MANAGEMENT, 2016
ABSTRACTPurpose – The purpose of this paper is to stimulate, shape and extend current discourse on the relevance of dynamic capabilities on firm competitiveness Design/methodology/approach –We delineate current debates on dynamic capabilities and synthesize them to develop some propositions and a heuristic framework to guide future research on dynamic capabilities as a strategic management construct.Findings –The theoretical and methodological complexities involved in mapping the routines and processes’ underpinning dynamic capabilities has led to conceptual discrepancies, which in turn impede our understanding of the relevance and contribution of dynamic capabilities to competitiveness. Measuring dynamic capabilities remains the biggest barrier to progress in developing directions for theory and research in this area.Practical implications- Stimulating and shaping the current discourse on the relevance of dynamic capabilities on competitiveness, our proposed integrated framework as a heuristic device can be to gauge the a firm’s dynamic capabilities vis à vis their competitors.Originality/value – We propose a framework built around the inter-relationships of capabilities and hierarchies of capabilities to extend our understanding of how dynamic capabilities can be developed relative to a firm’s ability and embedded context.Keywords – Dynamic capabilities, learning, hierarchies, rigiditiesPaper type – Conceptual Paper
IntroductionFrequently referred to as the strategic (re) configuration of a firm's competencies
generated from its resources in response to changing the business environment, the
concept of dynamic capabilities have come to dominate contemporary management
discourse (Ambrosini and Bowman, 2009; Teece, Pisano and Shuen, 1997; Berreto,
2010). While the existing literature contributes to our understanding of how firms
develop dynamic capabilities, contradictory conceptualizations of what constitutes
dynamic capabilities, coupled with subtle contradictions in definition and the
measurement of the concept (Easterby-Smith and Prieto, 2009; Zahra, et al. 2006)
means an explicit and definitive understanding of the concept and its influence on
competitiveness is yet to emerge. Nevertheless, little effort has been offered in
synthesizing the different conceptualizations to move research on dynamic capabilities
to newer pastures. The literature remains sporadic and conceptually fragmented. This
we argue has the potential to obfuscate the little we already know about the subject.
Our objective in this paper, therefore, is to provide a comprehensive review of the
existing literature on dynamic capabilities. Our main agenda is to stimulate and shape
the current discourse on the relevance of dynamic capabilities on competitiveness. This
we believe would enable researchers to develop a holistic understanding of the how
dynamic capabilities could be developed, relative to a firm’s ability and embedded
context, and permit a careful analysis of its evolution in organizing. Our framework is
built around the inter-relationships of capabilities and what we call the hierarchies of
capabilities to extend our understanding of how firms can develop this capability. We go
further in developing hypotheses and propose some future directions for theory and
research in this area.
The dynamic capability conceptA grasp of the way ideas such as resources, competencies, and capabilities are used in
strategic management research is imperative in understanding the convoluted concept
of dynamic capabilities. Resources are all the possessions owned by the firm and may
include the physical (such as factories, land, equipment), intellectual (patents,
copyrights, logos etc.), and employees (Collis and Montgomery, 2008). In this regard, a
capability can be conceptualised as the firm’s capacity to deploy its resources effectively
(Drnevich and Kriauciunas, 2011). A competence, on the other hand, is the ability to do
something successfully and/or efficiently (Drnevich and Kriauciunas, 2011). Capabilities
and competencies are generally used synonymously in the strategic management
literature. Core competencies, as defined by Teece, Pisano and Shuen (1997), are those
competencies that define a business relative to their competitors; what makes them
different from other firms. A range of assets, procedures and processes may enhance
these core competencies.
While a re-recurrent theme of recent theory increasingly argue that the
(re)configuration of a firm's competencies is what leads to dynamic capabilities
(Ambrosini and Bowman, 2009; Lepak et al., 2007), the subject of dynamic capabilities
remains popular yet divisive taking into consideration the plethora of definitions that
has been put forward to extend our understanding. Di Stefano, Peteraf and Verona
(2010), using co-citation analysis, for example, found both evidence of commonalities as
well as polarizing differences when it comes to dynamic capabilities research. Others
maintain that this should be expected from such a relatively new construct that is trying
to frame complex phenomena (Helfat and Peteraf, 2009). We provide an overview of
some of the definitions in Table1.0.
Table 1: Some definitions of dynamic capabilities
Author Year DefinitionTeece, et al 1997 The firm’s ability to integrate, build and reconfigure internal
and external competences to address rapidly changing environments.
Helfat 1997 The subset of competences/capabilities which allows the firm to create new products and processes and respond to changing market circumstances
Eisenhardt and Martin
2000 (Dynamic capabilities) thus are the organisational and strategic routines by which firms achieve new resources configurations as markets emerge, collide, split, evolve and die.
Griffith and Harvey
2001 A global (dynamic capability) is the creation of difficult-to-imitate combinations of resources, including effective coordination of inter-organisational relationships, on a global basis that provide a firm competitive advantage.
Zollo and Winter
2002 A (dynamic capability) is a learned and stable pattern of collective activity through which the organisation systematically generates and modifies its operating routines in pursuit of improved effectiveness
Zahra and George
2002 (Dynamic capabilities) are essentially change-oriented capabilities that help firms redeploy and reconfigure their resource base to meet evolving customer demands and competitor strategies
Lee, Lee and Rho
2002 A source of sustainable advantage in Schumpeterian regimes of rapid change
Winter 2003 They are those operate to extend, modify and create ordinary (substantive) capabilities.
Macpherson, et al
2004 The ability of managers to create innovative responses to a changing business environment
Nielsen 2006 An extension of the RBV where the firm is conceived as a collection of resources e.g. technologies, skills, knowledge-based resources.
Zahra, et al 2006 The processes to reconfigure a firm’s resources and operational routines in the manner envisioned and deemed appropriate by its principle decision maker
Teece 2007 Difficult-to-replicate enterprise capabilities required to adopt to changing customer and technological opportunities
Wang and Ahmed
2007 A firm’s behavioural orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities, and upgrade and reconstruct its core capabilities in response
Helfat, et al 2007 The capacity of an organization to purposefully create, extend or modify its resource base
Ambrosini, et al
2009 There are three levels of dynamic capabilities related to a manager’s perceptions of environmental dynamism. At the first level we find incremental (dynamic capabilities)…, at the second level are renewing (dynamic capabilities)…, at the third level are regenerative (dynamic capabilities)
A dynamic capability differs because it refers to the organisational
routines/processes instead of the resources themselves (Teece, et al 1997). Whereas
resources are a static stock, dynamic capabilities are considered a flow that affects
resources (Romme, et al., 2010). Teece et al’s (1997) seminal work coined dynamic
capabilities as the firm’s ability to integrate, build and reconfigure internal and external
competences to address rapidly changing environments.
Scholars have attempted to bring to bear the essence of the construct by depicting its
position to other capabilities. These hierarchical typologies aid in understanding the
level of complexity intended by their curators. Winter (2003) divided capabilities into
three different levels. First, he identified the ‘zero-level' capabilities referring to
ordinary day-to-day functions of the firm. At this level, the firm has the capabilities to
compete and achieve parity with competitors. The second level was referred to by
Winter (2003) as ‘first-level’ capabilities, which modify, change and reconfigure ‘zero-
level’ capabilities. Ambrosini, Bowman and Collier (2009) add that this level of
capability augments the resource base to refresh, renew and adapt capabilities. At the
third level, Winter (2003) adds the notion of ‘higher-level’ capabilities that change the
way the firm changes its capabilities. Table 2.0 provides an overview of selected papers
that have sought to develop typologies to extend our understanding on the complexity of
capabilities in practice.
Table 2 hierarchical typologies of dynamic capabilities
Dynamic capabilities are Winter’s (2003) first-level capabilities since they create
ordinary capabilities. This hierarchical element of dynamic capabilities is denoted in the
majority of definitions explicitly, such as Helfat (1997), or implicitly, to the
organisational level. The value of developing this hierarchical system is that it alludes to
varying degrees of complexity. This complexity highlights the unsettled nature of the
relatively new construct of dynamic capabilities and is apparent in the contrasting
definitions offered in the literature (figure 2). There is disagreement as to what this
concept is called; Teece et al (1997) described it as ‘an ability’; Eisendhardt and Martin
(2000) refer to dynamic capabilities as ‘routines’; Wang and Ahmed (2007) regard them
as ‘behavioural orientation’. These differences stem from the academics’ perception of
the construct. For instance, Teece et al (1997) view the external environment as an
essential in understanding the concept by referring to dynamic capabilities as those
organizing capabilities that address the volatility in the market. In contrast, Wang et al
(2007) in response to the fleeting external environment argue that the purpose of
dynamic capabilities is to upgrade core-capabilities, whereas Zollo and Winter (2002)
disregard the external environment altogether. Synthesising the three competing
perspectives , Teece (2007) codified dynamic capabilities as ‘sensing’, ‘seizing’ and
‘reconfiguring’ organizational capabilities in dynamic environments.
Another example is the notion and conceptualization of change in the definitions.
For example, Teece et al (1997) employ words such as ‘integrate, build and reconfigure’
whereas Winter (2003) uses the words ‘extend, modify and create’ and Zahra et al
(2006) adopt only the word ‘reconfigure’. All of these words are used to describe a type
of change but relate to a specific means and ends as in the case of Tsekouras et al
(2010) when they examined the relationship between innovation and dynamic
capabilities. Indeed, it is conceptual differences such as these that lead to contrasting
definitions. Thus far, it can be understood that there are key similarities regarding
dynamic capabilities and their relation to other capabilities. Therefore, it may be
possible to deduce that: -
Proposition 1: Dynamic capabilities are the most complex form of
capabilities of a firm.
However, deducing a clear definition of dynamic capabilities cannot be made without
first pinning down the key conceptualizations. This literature review seeks to
understand what the root causes of the differences are; fundamental to any construct is
the understanding of its origin and purpose, which are the topics of the first two
themes.
Sources of dynamic capabilitiesThe resource-based view was first explicitly stated by Barney (1991) and later
developed by others such as Peteraf (1993) and Helfat and Peteraf (2003). The
resource-based view essentially focuses on the physical possessions of the firm and how
they can be leveraged to attain a sustainable competitive advantage. Barney (1991)
specifies four conditions for firms to achieve sustainable competitive advantage, namely
valuable, rare, inimitable and non-substitutable (VRIN). Definitions of dynamic
capabilities have components of these conditions (Eisenhardt and Martin, 2000; Griffith
and Harvey, 2001; Teece, 2007; Berreto, 2010). The resource-based view also led to the
knowledge-based view described as the body or social context in which knowledge will
be developed, sustained and protected (Grant, 1996). This construct has grown and has
made numerous contributions to organisational learning (Lopez, 2005). However, both
the resource-based view and knowledge-based view are static analyses of the resource
portfolio; both being unable to adequately respond to an external environment that is
changing exponentially (Priem and Butler, 2001; Arend and Levesque, 2010). Dynamic
capabilities gain merit because the resource-based view is a static construct. Teece et al
(1997) argue that their construct is designed to achieve congruence with the changing
external environment. The key distinction between the resource-based view and
dynamic capabilities is that the resource-based view is concerned with locating the
source of profitability (Bowman and Ambrosini, 2003) in the firm where dynamic
capabilities are built and cannot be bought (Makadok, 2001). There is a consensus that
learning is a fundamental ingredient to dynamic capabilities (Cavusgil et al, 2007;
Eisenhardt and Martin, 2000; Easterby-Smith and Prieto, 2008; Johansen, 2007).
However, authors differ in the role learning plays within the construct. Teece et al
(1997) define learning as the process by which repetition and experimentation enable
tasks to be better performed. Zott (2003) identifies learning of resource deployment as
a performance-relevant attribute of dynamic capabilities. They both, in other words, see
learning as a component of the construct. Further, some authors identify learning as the
catalyst that guides the evolution of dynamic capabilities (Winter, 2003; Eisenhardt &
Martin, 2000).
The types of learning that take place have also been discussed in the literature.
Teece, et al (1997) explain the difficulty in analysing tacit knowledge. It is not written
down nor is it captured outside the individual and hence has been identified as
problematic to dynamic capabilities since it limits the ability to codify and then
systematically apply at the firm level (Usdiken, Kieser 2004). Teece (2007) adds that
intangible assets are critical to the generation of new ideas and recommends incentive
structures that enable their development. Zollo & Winter (2002) posit that the origin of
dynamic capabilities is knowledge. Their argument is that through the enjoinment of
experience and codification induces dynamic capabilities. Scholars have also discussed
how learning is accomplished in order to underpin and develop dynamic capabilities.
Teece et al (1997) assert that learning may be confined to trial and error. While
Eisenhardt & Martin (2000) agree, they also add that learning comes from both failure
and success. Davidsson (2003) explains when failure is corrosive – catalyst venture and
failed ventures. Catalyst ventures fail because they were outsmarted by either followers
or incumbents. The latter represents failed efforts due to low financial success and
hence did not have any followers or incumbents.
Zollo & Winter (2002) argue that a dynamic capability is a learned and stable
pattern of activity. Their statement needs to be clarified since this could lead to
tautology of the definition. Eisenhardt & Martin (2000) acknowledge that dynamic
capabilities may be seen as vague for its ‘routines that learn routines’ type definitions.
Instead, they propose that there are learning mechanisms that guide the evolution of
dynamic capabilities, repetitive but compounding. Nonetheless, authors appear to
regard it as the root component of dynamic capabilities. Zollo & Winter (2002) go so far
as to say that dynamic capabilities arise from learning and are the firm’s systematic
method of modifying operating routines. Easterby-Smith & Prieto (2008) argue that the
learning processes are a common theme underlying both dynamic capabilities and
knowledge management. Bingham et al (2015), by using dynamic capabilities over a 20
year data set, underline the use of learning by developing and emergent framework
they describe as ‘concurrent learning’. This further emphasises they root of learning
within this construct, not only in isolation but also as part of enabling success of a firm
on a longitudinal study.
However, learning (once captured as knowledge) may also expire. It may become
irrelevant in improving the firm in general or even go so far as to hinder progress, as
core capabilities may turn into core rigidities over time (Leonard-Barton, 1993). A firm’s
capabilities that were once producing rents for the firm may later actually become a
disability. This may be countered by regular maintenance and upgrades. Winter (2003)
states that successful maintenance of a skill or routine typically requires frequent
exercise to avoid the ‘rustiness problem’. Therefore,
Proposition 2: Learning is the origin of dynamic capabilities and must be continuously updated.
Our argument here is that dynamic capabilities are rooted in the resource-based
view and that learning is a key ingredient or perhaps even the source of dynamic
capabilities. Closely related, the next section will discuss the purpose of dynamic
capabilities.
Purpose of dynamic capabilities
This section will trace the debate concerning the purpose of dynamic capabilities. The
central argument here is whether dynamic capabilities achieve a sustainable
competitive advantage or operational efficiency. The consequential effects and
implications of either choice are deliberated. Strategic management was previously
dominated by how a firm would gain a competitive position in relation to their
competitors by exposing the imperfections of others in a given sector (Lopez, 2005). The
shift has now focused on an intra-organisational perspective which assesses the firm's
own capabilities, as well as external factors, in competing (Muller and Turner, 2010;
Priem and Butler, 2001). There has been abundant debate around the purpose of
dynamic capabilities. Teece, et al (1997) not only believes that dynamic capabilities’
purpose is to achieve sustainable competitive advantage but add a caveat – that it can
only be achieved if the collection of routines, skills, and assets are difficult-to-imitate.
This echoes' and simplifies Barney’s (1991) definition of sustainable competitive
advantage; implementing a value creating the strategy not simultaneously implemented
by any current or potential competitors and when these other firms are unable to
duplicate the benefits of this strategy. In contrast, Eisenhardt & Martin’s (2000) view is
that, because dynamic capabilities may be transferable to other firms, their value for
competitive advantage is in the configuration they create and not necessarily the
dynamic capability itself. Figure 3 delineates some of the major conceptualizations of
the position of dynamic capabilities in firms’ organizing processes.
Figure 1 Position of dynamic capabilities in firms’ organizing processes
They evaluate dynamic capabilities are a necessary but not sufficient condition for
competitive advantage. Firms may use them in idiosyncratic ways in developing and
employing them and hence this variability gives firms a basis to pursue different types
of competitive advantage (Schilke, 2013; Zahra & George, 2002). There is also the
consequential effect linking dynamic capabilities with sustainable competitive
advantage. Priem and Butler (2001) assert that dynamic capabilities are only identified
where there is a sustained competitive advantage. Thus, to say a firm has a sustainable
competitive advantage is akin to saying a firm has a dynamic capability (Arend and
Bromiley, 2009). Winter (2003) proposed that clarity is served by breaking the link
between dynamic capabilities and competitive advantage. Helfat, et al (2007) also called
for the decoupling of dynamic capabilities and sustainable competitive advantage. This
post-success identification is problematic as it infers dynamic capabilities are a
construct only for successful firms. It may even be proposed that dynamic capabilities
do not guarantee success or survival (Zahra, et al, 2006).
Furthermore, there has been a shift in David Teece’s hypothesis when he argued
in Teece (2007) that “the ambition of the dynamic capability framework is to explain the
sources of enterprise-level of competitive advantage over time." Teece (2007) went
further to observe that "dynamic capabilities undergird the sustainability of enterprise-
level competitive advantage". These statements imply the separation of dynamic
capabilities and sustainable competitive advantage but do not divorce them completely.
From this perspective, Pitelis and Teece (2009) assert that dynamic capabilities are
important for the effectuation of sustainable competitive advantage, reinforcing the
views advanced by Eisenhart and Martin (2000), Winter (2003) and of course, Rindova
and Kotha (2001). To this end, it seems there is a move away from determining that
dynamic capabilities yield a sustainable competitive advantage. If this is the case, it is
not clear exactly how or what benefits this construct may yield to a firm. The arguments
between sustainable competitive advantage and operational efficiency have been made
clear by Porter (1996). To allow a division of dynamic capabilities and sustainable
competitive advantage, there needs to be recognition that there are some capabilities
that do yield the firm a sustainable competitive advantage. For example, a firm may be
known for its excellence in the machinery of a particular component or the design of
certain products or services. We propose that these are core capabilities and not
dynamic capabilities. This then gives permission to the dynamic capabilities construct to
play the highest form of support towards core-capabilities without being constrained to
the consequential effects of being linked with sustainable competitive advantage and all
it entails. Thus,
Proposition 3: The purpose of dynamic capabilities is to enshroud and support core capabilities.
This section has described the argument surrounding the purpose of dynamic
capabilities and its implications. The next section takes a broader view by delving into
the relationship of the construct with its environment.
The context of dynamic capabilities
This section discusses the external environmental factors of dynamic capabilities. It
begins with the notion of change, its position within the construct and the opportunity
cost. This is followed by a discussion of the relationship between dynamic capabilities
and the volatility of the market. This section is concluded by discussing who the
enablers of dynamic capabilities are and the role they play. Change is mentioned almost
synonymously with dynamic capabilities throughout the literature (Nedzinskas et al,
2013). Authors have mentioned different types of change in both defining and
attributing to the construct. Schreyögg and Kliesch-Eberl, (2007), after pointing out the
inherent ambiguities prevalent to organizations, identify three broad approaches: 1)
radical dynamization, 2) integrative, and 3) the innovation routine. The first approach is
our subject of discussion here. Radical dynamization postulates that dynamic
capabilities have mastered the rhythm and flow of highly changing environments. An
example of this could be the work done by Sune and Gibb (2015) who demonstrate how
a firm (Spanair) leveraged its resources in a high turbulence environment to develop
hierarchical capabilities in transferring, integrating and shredding. In other words, the
firm was in tune with the rhythm of the changing environment better than other firms in
its industry. This is similar to Winter (2003) who specifies that dynamic capabilities are
different to ordinary capabilities because they are concerned with change. Teece (2007)
states that dynamic capabilities are fundamental to an enterprise to create, adjust,
hone, and even replace business models. Thus, it is clear that change is part of dynamic
capabilities, but is it an exclusive attribute? Many scholars do not believe this to be the
case (Winter, 2003; Helfat and Peteraf, 2003; Arend and Bromiley, 2009). Helfat and
Peteraf (2003) assert that all capabilities have the potential to both accommodate and
enact change without the intervention of dynamic capabilities. Arend and Bromiley
(2009), remark that if a firm does not change it does not mean that they lack the
capacity to change. The argument is that the presence or absence of change does not
demonstrate or rule out that a firm as a dynamic capability and, therefore, cannot be an
exclusive attribute.
Furthermore, the academic community has also discussed the notion of whether
dynamic capabilities exist only in volatile environments or whether they exist regardless
of the nature of the external environment. Zahra, et al (2006) and others acknowledge
this is a source of confusion. Many authors agree with Teece, et al (1997) who defines
that dynamic markets function in rapidly changing environments (Augier and Teece,
2007; Eisenhardt and Martin, 2000; Helfat, 1997; Macpherson et al, 2004; Teece, 2007).
The notion here is that dynamic capabilities are like fish out of the water, if they are not
in volatile environments – they do not belong there. Zahra, et al (2006), without
excluding their existence in non-volatile environments, argue that the potential gain
from dynamic capabilities is greater in dynamic environments. Helfat and Peteraf
(2015) go further and explore the role of managerial cognition and its importance of the
implementation of dynamic capabilities. They identify particular types of cognitive
capabilities that are necessary for dynamic capabilities to function. This suggests a
greater depth of understanding from managers that previously thought.
Arend and Bromiley (2009) critique the linking of a volatile environment in defining
dynamic capabilities. They argue that if two identical firms display identical behaviours
but in different environments (one in a stable industry and another in a volatile
industry) then the case for attributing one with dynamic capabilities and the other
without seems illogical. The perception is that anything that refers to change may be
considered a dynamic capability. Thus,
Proposition 4: There is a correlation between the volatility of a firm’s external market and the development of the firm’s dynamic capability.
Moreover, consideration must be taken into account as to the cost involved in changing
capabilities. Teece et al (1997) warn of the cost attached to implementing dynamic
capabilities and, as a result firms need to develop processes to minimize low pay-off
change. Winter (2003) agrees and adds that attempting too much change, perhaps
simply to exercise dynamic capabilities, may outweigh the competitive value from the
novelty achieved. However, Teece (2007) asserts that it is possible to carry out
modulated change if the ecosystem of the firm is stable. They recognise that firms tend
to prefer more incremental competency-enhancing improvements rather than radical
competency-destroying innovations. This may be closely linked with the perception of
the decision makers. Existing research has stressed that top management is frequently
involved in the successful implementation of dynamic capabilities (Kor and Mesko,
2013). From this perspective, Katkalo, Pitelis and Teece (2010) have argued that
dynamic capabilities aid the decision-making process whilst Pandza and Thorpe (2009)
give importance to the role managerial agency plays in learning, the knowledge
progression of the firm and actualising dynamic capabilities. Zahra, et al (2006)
considers having a decision maker in carrying out dynamic capabilities. More explicitly,
Teece (2015), evaluates the necessity of the ‘entrepreneurial manager’ in the dynamic
capabilities. Regnér (2008) considers top management as the enablers of dynamic
capabilities. Perhaps more intuitively, Rindova and Kotha (2001) argue that top
management may serve as an intermediary between the organisational actors who learn
and the organisational structures and routines. This leads to,
Proposition 5: The degree of investment in dynamic capabilities is based on the ability of top management to perceive the development of their internal capabilities relative to the external environment.
In the following section, we focus on the methodologies frequently employed in
theorizing dynamic capabilities and most importantly the difficulty in overcoming the
theoretical and empirical specifications to measure the construct.
Methodological challenges in theorizing dynamic capabilities
The concept of dynamic capabilities has attracted a lot of criticism for being empirically
difficult to measure and possibly ‘unpack’ its underlying operational processes and
relationship with the firm at large (Easterby-Smith et al, 2009; Di Stefano et al, 2010).
In response, Pablo et al (2007) while affirming that the dynamic capabilities framework
is building momentum, concede that empirical studies in the field remain relatively rare.
Zahra et al (2006) also state that academics have not given due attention to the process
of how these capabilities develop. Other scholars argue that this should be expected
from such a relatively new construct that is trying to frame complex phenomena (Helfat
and Peteraf, 2009). Ambrosini and Bowman (2009) suggest that there is no need for
surprise since traditionally researchers would begin with a theory. They then develop
hypotheses or a proposition, which leads to it being empirically tested. This should
result in the managerial prescription if proven true. For Arend and Bromiley (2009), the
construct has been employed in relatively few empirical studies. Therefore, there should
be no surprise that empirical support for dynamic capabilities is limited because work in
this area did not start until Teece et al (1997).
Most studies discuss overarching, broad firm-level processes and do not indulge
in the detail of the intricate micro-level workings. For example, Narayanan, Colwell and
Douglas (2009)use a case study of a pharmaceutical company to deduce two dynamic
capabilities. Newey and Zahra (2009) use a case study regarding the development of
drugs based on two pharmaceutical firms. Bruni and Verona (2009) investigated the
role dynamic marketing capabilities by interviewing six pharmaceutical firms.
Unfortunately, these studies do not affirm or negate conceptual holes in the construct
but carry on the study regardless. This loose use of dynamic capabilities is the focus of
Guidici and Reinmoeller(2012), who use Lane, Koka and Pathak’s (2006) rigorous
methodology of analysing the usage of a research community absorptive capacity
construct and applied it to dynamic capabilities. This process, coined as ‘reification’
(Lane et al, 2006) is designed to specify the assumptions that underlie the construct and
treat it like a general-purpose solution to an increasing range of problems. Their
findings, whilst acknowledging a general lack of cohesion, compelled them to advise
that continuous theoretical cherry-picking and mixing sub-elements from competing
definitions will be the surest route to the construct’s collapse” (Giudici and Reinmoeller,
2012). Arend and Bromiley (2009) state that there is a lack of consensus on how to
measure dynamic capabilities alluding to the wide range of proxies. For example,
Macher and Mowery (2009) studied the yield and cycle time of manufacturers of
semiconductors over a six-year period. In this longitudinal study, they used processes
they considered affected the dynamic capability of new process development as proxies.
This included intra-team diversity, IT-practices and database analysis. This prompts the
question, how can these proxies be applicable in another context?
Alternatively, McKelvie and Davidsson (2009), argue that quantitative methods are a
viable way of measuring dynamic capabilities. Through a series of structured
questionnaires sent to executives, they discuss the origins and development of the
construct. In contrast, Ambrosini and Bowerman (2009) encourage increasing the
number of qualitative field investigations to tackle notions that the construct is
intractable and abstract (Danneels, 2008). Perhaps Lockett and Thompson’s (2001) may
be a suitable compromise. They suggest that there may be a case for sacrificing some
generalizability for a more qualitative approach to detail.
Towards an organizing framework
Based on our review of the literature, we propose a heuristic framework that could
extend our understanding of how dynamic capabilities can be developed relative to a
firm’s ability and embedded context. Our framework (as shown in figure 4) is organized
around the hierarchy of capabilities and draws on four distinct levels. It is important to
note that there is a staggered overlap between distinct capabilities that accommodates
the development of idiosyncratic capabilities from one level to another. These levels
may be better understood as categories that have specific criteria in order for ‘a
capability’ to qualify for that rank. This separation, we believe will allow firms to have
idiosyncratic capabilities whilst emphasizing the commonalities between them. Thus,
the more sophisticated the capability, the greater the level of embedded learning.
Figure 2 Proposed frameworks -The relationship between capabilities
The first category is daily capabilities (ordinary capabilities) in which a firm carries out
those tasks that enable the firm to perform its functional tasks. The second is the
operational efficiency capability in which a firm attempts to become more effective in
what it does by attempting to do daily capabilities in ways that are more effective. The
third category is reactive capabilities where a firm encounters problems and
unexpected events and is forced to deal with them. The firm overcomes these obstacles
and gains specific firm-based experiential knowledge; change is forced on the firm by
unforeseen activities. The fourth category is dynamic capabilities in which a firm's
ingrained knowledge of its previous three levels of capabilities permits it to make
changes that are in its favour in an aggressive manner. This category qualifying
attribute is that capabilities are the instigators of change and not necessarily the
market.
Perhaps more practically, our framework enables firms to measure their level of
capability to some degree. For instance, they may take into consideration cost, growth
and the external environment. Firms need to understand that these capabilities come
with costs, that if a firm does not understand its environment or growth plan, that could
overweigh the benefits of having these capabilities. Hence, capabilities act as a shroud
to the firm's core-competence (i.e. the product or service) by keeping it running, making
it more efficient and building resilience against unforeseen problems. More specifically,
dynamic capabilities act as a defence against competitive market forces and revitalise
current capabilities. Our descriptive framework is also somehow predictive too as it
proposes that a firm may measure the level of learning they are at, compared to the
growth they have reached. This can then be contrasted with the level of investment the
firm has made against the volatility of the market demonstrating the level of progress
that needs to be made to run at the optimum capability from point A to B.
Discussion and conclusions
Research in strategic management continues to apply the dynamic capabilities
framework even though their aforementioned issues are yet to be resolved (Eriksson,
2011). An example of this is the examination of the drivers of franchised chains
performance (El Akremi et al, 2015). The study uses the DC construct as a lens to justify
the interrelated nature of franchised chains and say "Dynamic capabilities are chain-
specific and are developed over time through complex interactions between resources,
specifically knowledge and management expertise" (El Akremi et al, 2015). Indeed, the
authors discuss a number of things at length and use the framework just as other
empirical papers using the construct have. We merely mention this study as an example
of scholars using the construct without fully engaging with the conceptual and practical
issues still to be rectified.
Progress is being made by academics as to how dynamic capabilities relates to
other phenomena. For example Teece (2012), in the paper entitled “Dynamic
Capabilities: Routines versus Entrepreneurial Action”, assimilates the higher-level
competence of dynamic capabilities to that of acting entrepreneurially. He explicitly
calls it “enterprise-level dynamic capabilities” referring to the ability of the firm to
identify the projects with which lower-level routines will then carry out. We mention it
here to demonstrate the nature of dynamic capabilities being able to explain some
aspects of other constructs. The theme of relating the construct to other frameworks
was taken further by Wang et al (2015) who evaluated why some firms are better at
developing dynamic capabilities than others. Their paper takes the view that dynamic
capabilities require commonalities for an advancement of empirical work. This seems
counter-intuitive to the essence of the construct. They adopt absorptive and
transformative capabilities as a framework that is both conceptually distinctive (inward
and outward looking) but mutually reinforcing. Although this paper makes a compelling
argument it does not entertain some of the fundamental issues discussed here.
Elswhere, Maclean et al (2015) discuss at length the limitations of the construct and
argue the inherent issues lies with the data being based on rational and normative
notions on action as oppose to accounting on novelty in action. They remedy this by
proposing the concept of creative action which may allow an impasse for the construct
to move forward.
In extreme contrast, Arend (2015) makes a case to as to the flaws of the
construct. His paper "Mobius' edge: infinite regress in the resource-based and dynamic
capabilities view" discusses the infinite regress problem and points out the logical
inconsistencies between levels as firms seek a competitive advantage. Arend (2015),
also relating it to the broader strategic field, explains the consequences this has on
management and academia. The paper, provides legitimate, is overly critical of the
merit that has been yielded by using this framework. It is clear that dynamic capabilities
as a construct have some merit and yet it matters are unresolved. The lack of empirical
data on dynamic capabilities has been noted above. Taking into consideration the
preceding discussion on the unstable foundations and lack of empirical work in the
dynamic capabilities field, there is little doubt that further empirical work needs to be
taken into consideration. Our methodology has been to take those concepts where there
is little disagreement and reframe it in such a way that will allow academics to further
the enquiry into this construct.
Moreover, a bigger challenge will be the development of our proposed model into an
operationalised entity. Further research needs to address; what proxies can be taken to
consider what a ‘high volatility market' is? What are the gatekeeper criteria from one
level to the next? How does the perception of management have an effect on the level of
dynamic capability a firm has? We hope our heuristic framework will provide a basis
that can be used as a springboard for future research on the topic of dynamic
capabilities.
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