Dynamic Capabilities and Strategic Management

(Strategic Management Journal, 18, 7, 509-534)

Presented By:

Syed Shahid HussainMaham ShahidRehman Asif

Authors of the Article

David J. Teece AMY SHUENGary Pisano

I N T R O D U C T I O N

Models of Strategy

1. Emphasizing the exploitation of market power(competitive forces & strategic conflict)

2. Emphasizing efficiency(resource-based perspective & dynamic capabilities approach)

TOWARD A DYNAMIC CAPABILITIES FRAMEWORK- Markets and strategic capabilities- Processes, positions, and paths- Replicability and imitatability of organizational processes and positions

CRITIQUES

INTRODUCTION Introduction of existing three paradigms

- Competitive forces (Industry-Specific)- Strategic conflict (Game theory based on managerial

ability)- Resource-based (Firm-Specific)

Emerging new paradigm – ‘dynamic capabilities’- Processes, positions, and paths- Replicability and imitatability of organisational

processes and positions

I N T R O D U C T I O N…

Paradigms of Strategy: Salient Characteristics

AssumptionFirms can achieve and sustain competitive advantage by developing the dynamic capabilities approach to address rapidly changing environments.

PurposeTo provide a coherent framework which can both integrate existing conceptual and empirical knowledge and facilitate prescription.

- Definition• The term dynamic refers to the capacity to

renew competences so as to achieve congruencewith the changing business environment.

• The term capabilities emphasizes the key role ofstrategic management in appropriately adapting,integrating, and reconfiguring internal andexternal organizational skills, resources andfunctional competencies to match therequirements of a changing environment.

- Definition

• The term dynamic capabilities refers to thefirm’s ability to integrate, build, and reconfigureinternal and external competences to addressrapidly changing environment.

• It reflect an organization’s ability to achieve newand innovative forms of competitive advantagegiven path dependencies and market positions.

processespositions

paths

Transferring orredeployingcompetences fromone concreteeconomic settingto another

replication

imitationReplicate by the

The competitive advantage of firms lies with its managerial andorganizational processes, shaped by its (specific) asset position,and the paths available to it.

How firms

achieve andsustaincompetitiveadvantage?

A difficult-to-replicate ordifficult-to-imitatecompetence must be builtbecause it cannot be bought.

DYNAMIC CAPABILITIES FRAMEWORK

Dynamic Capabilitiesand Strategic ManagementTeece D., Pisano G., and Shuen A. 1997.

the way things are done(routines, patterns of practice and learning)

current specific endowments(technology, complementary assets, customer base, external relations)

strategic alternatives(presence or absence of increasing returns and attendant path dependencies)

Processes

Positions

Paths

Positions

Coordination/integration

Learning

Market(structure) Assets

Organizational and managerial processes

The firm’s processes andpositions collectivelyencompass its competencesand capabilities.

Financial Assets Organizational processes, shaped by the firm’s asset positions and molded by paths, explain the essence of the firm’s dynamiccapabilities and its competitive Advantages.

Technological AssetsComplementary Assets

Institutional Assets

Path Dependencies

Tech. Opp.

Reputational Assets

Structural Assets

Reconfiguration & TransformationPaths

Dynamiccapabilitiescan be seen as anemerging andpotentiallyintegrativeapproachto understandingthe newer sourcesof competitiveadvantage.

Dynamic Capabilities Models

Please click here

.

Key to summarize:

• ‘Dynamic Capabilities' approach is to stressexploiting existing internal and external firmspecific competences to address rapidlychanging environments.

• It emphasizes the development ofmanagement capabilities, and difficult-to-imitate combinations of organizational,functional and technological skills.

Key Question to think:How some organizations first develop firm-specific capabilities and how they renewcompetences to respond to shifts in thebusiness environment? (business processes,Market positions, expansion paths)

Key point:To be strategic, a capability must be honed toa user need, unique and difficult to replicate.

CRITIQUES• Logical Conceptual Framework• Tautological• Dynamic Capabilities - the firm's ability to

integrate, build and reconfigure internal andexternal competences to address rapidly changingenvironments

• Difficult to operationalize• Lack of algorithm

to translate environmental factors into capabilities model• Path dependency

CRITIQUES

Three other main components of dynamic capabilities have not been incorporated in this framework i.e. adaptive capability (Miles and Snow 1978; Chakravarthy 1982; Hooley et al., 1992), absorptive capability (Cohen and Levinthal, 1990) and innovative capability (Wang and Ahmed 2004).

CRITIQUES This article reflects all about the rapid technological

change only. Dynamic market environment can also be caused by regulatory change, economic change and the changing competitive nature of the industry.

It should take full advantage of the four paradigms to solve complex problems …organized complexity (Mason and Mitroff, 1981).

CRITIQUES Another very important perspective needs to be well

thought-out is knowledge management and Organizational Learning. Crossan et al., (1999) provided a very famous 4I’s model and reported that

ideas (tacit-knowledge) initiate from individual after conceptualization it is

discussed in teams and groups, then after some amendments it gets

legitimized (agreed upon) status for an organization and becomes routine,

process or law (explicit-knowledge).

This is a cyclical process around tacit- explicit-tacit knowledge; Nonaka’s

(1994) SECI model may be consulted to the phenomenon of ‘knowledge

spiral’.

Discussion

1. At which point should a firm decide thatinstead of constantly adjusting tochanging environments, its time toadapt the environment to its capabilitiesand competences?

2. Do you believe that these four differentstrategic approaches arecomplementary or competitive?

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