Dynamic Capabilities and Strategic Management

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

Presented By: Syed Shahid Hussain Maham Shahid Rehman Asif

Authors of the Article

David J. Teece

Gary Pisano

AMY SHUEN

INTRODUCTION
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

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

Paradigms of Strategy: Salient Characteristics

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

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

- Definition
The term dynamic refers to the capacity to renew competences so as to achieve congruence with the changing business environment. The term capabilities emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources and functional competencies to match the requirements of a changing environment.

- Definition
The term dynamic capabilities refers to the firms ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environment. It reflect an organizations ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions.

The competitive advantage of firms lies with its managerial and organizational processes, shaped by its (specific) asset position, and the paths available to it.
How firms
Transferring or redeploying competences from one concrete economic setting to another

positions processes

achieve and sustain competitive advantage?

paths A difficult-to-replicate or difficult-to-imitate competence must be built because it cannot be bought.

replication imitation
Replicate by the

Dynamic Capabilitiesand Strategic Management

Teece D., Pisano G., and Shuen A. 1997.

DYNAMIC CAPABILITIES FRAMEWORK

Processes

the way things are done

(routines, patterns of practice and learning)

Positions
Paths

current specific endowments

(technology, complementary assets, customer base, external relations)

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

Organizational and managerial processes

The firms processes and positions collectively encompass its competences and capabilities.

Coordination/integration Learning Reconfiguration & Transformation

Path Tech. Opp. Dependencies

Technological Assets Complementary Assets

Financial Assets

Paths

Organizational processes, shaped by the firms asset positions and Institutional Assets Reputational Assets molded by paths, explain the essence of the firms dynamic Market(structure) Assets capabilities and its competitive Advantages.

Structural Assets

Positions

Dynamic capabilities
can be seen as an emerging and potentially integrative approach to understanding the newer sources of competitive advantage.

Dynamic Capabilities Models

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Key to summarize:
Dynamic Capabilities' approach is to stress exploiting existing internal and external firm specific competences to address rapidly changing environments.

It emphasizes the development of management capabilities, and difficult-toimitate combinations of organizational, functional and technological skills.

Key Question to think: How some organizations first develop firmspecific capabilities and how they renew competences to respond to shifts in the business environment? (business processes, Market positions, expansion paths)
Key point: To be strategic, a capability must be honed to a user need, unique and difficult to replicate.

CRITIQUES
Logical Conceptual Framework Tautological Dynamic Capabilities - the firm's ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments 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 4Is 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; Nonakas (1994) SECI model may be consulted to the phenomenon of knowledge

spiral.

Discussion
1. At which point should a firm decide that instead of constantly adjusting to changing environments, its time to adapt the environment to its capabilities and competences?

2. Do you believe that these four different strategic approaches are complementary or competitive?

REFERENCES
Argyris, C., Schon, D. (1978). Organizational Learning. Reading: MA: Addison-Wesley. Baskerville and Dulipovici, (2006). The Theoretical Foundations of Knowledge Management. Knowledge Management Research & Practice. 4,83-105. Crossan, et al., (1999). An Organizational Learning Framework: From Intuition to Institution. Academy of Management Review, 24(3), 522-537. Covin and Slevin, (1989). Strategic Management of Small Firms in Hostile and Benign Environments. Strategic Management Journal. 10, 75-87. Daft R. L. and Weick, K. E. (1984).Toward a Model of Organizations as Interpretation Systems. Academy of Management Review, 9, 284-295. Hatch, M. J. (Ed.).(1997). Organization Theory. Great Clarendon Street: Oxford University Press. Kitapci, H., Aydin, B. and Celik, V. (2012). The Effects of Organizational Learning Capacity and Innovativeness on Financial Performance: An Empirical Study. African Journal of Business Management, 6(6), 2332-2341. Levitt and March, (1988). Organizational Learning. Annual Review Social. 14, 319-340. Mason and Mitroff, (1981). Complexity: The Nature of Real world Problems. Challenging Strategic Planning Assumptions. Winley, New York. Miles, et al., (1978). Organizational Strategy, Structure and Process. Academy of Management Review. 3(3), 546-562. Nonaka and Peltokorpi, (2006). Objectivity and Subjectivity in Knowledge Management: A Review of 20 Top Articles. Knowledge and Process Management. 13(2), 73-82