classic Strategy& interview – https://www.strategy-business.com/article/00225?gko=32b8d – and source:Dynamic Capabilities — David J. Teece
IN THE NEWSTHE SCHOLARPUBLICATIONSBIOGRAPHYDYNAMIC CAPABILITIESHAAS BUSINESS SCHOOL INSTITUTE FOR BUSINESS INNOVATIONTHE ENTREPRENEURBERKELEY RESEARCH GROUPTEECE FAMILY VINEYARDSVOMO ISLAND RESORTCONTACT
Dynamic capability is “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (David J. Teece, Gary Pisano, and Amy Shuen).
Dynamic capabilities can be distinguished from operational capabilities, which pertain to the current operations of an organization. Dynamic capabilities, by contrast, refer to “the capacity of an organization to purposefully create, extend, or modify its resource base” (Helfat et al., 2007). The basic assumption of the dynamic capabilities framework is that core competencies should be used to modify short-term competitive positions that can be used to build longer-term competitive advantage.
Watch Dr. Teece and others describe dynamic capabilities and strategy:
- Dynamic Capabilities: Addressing Deep Uncertainties
- Dynamic Capabilities: Framing the Problem through Sensing
- Dynamic Capabilities: Globalization: Why It’s a Brave New World
- Dynamic Capabilities: Beating Back the Short-Termism
- Beyond the Next Big Thing: Stewardship of Intangible Assets through Dynamic Capabilities
Three dynamic capabilities are necessary in order to meet new challenges. Organizations and their employees need the capability to learn quickly and to build strategic assets. New strategic assets such as capability, technology, and customer feedback have to be integrated within the company. Existing strategic assets have to be transformed or reconfigured.
Teece’s concept of dynamic capabilities essentially says that what matters for business is corporate agility: the capacity to (1) sense and shape opportunities and threats, (2) seize opportunities, and (3) maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets.
Learning requires common codes of communication and coordinated search procedures. The organizational knowledge generated resides in new patterns of activity, in “routines,” or a new logic of organization. Routines are patterns of interactions that represent successful solutions to particular problems. These patterns of interaction are resident in group behavior, and certain sub-routines may be resident in individual behavior. Collaborations and partnerships can be a source for new organizational learning, which helps firms to recognize dysfunctional routines and prevent strategic blind spots. Similar to learning, building strategic assets is another dynamic capability. For example, alliance and acquisition routines can enable firms to bring new strategic assets into the firm from external sources.
The effective and efficient internal coordination or integration of strategic assets may also determine a firm’s performance. According to Garvin (1988), quality performance is driven by special organizational routines for gathering and processing information, linking customer experiences with engineering design choices, and coordinating factories and component suppliers. Increasingly, competitive advantage also requires the integration of external activities and technologies: for example, in the form of alliances and the virtual corporation. Zahra and Nielsen (2002) show that internal and external human resources and technological resources are related to technology commercialization.
Transformation of existing assets
Fast-changing markets require the ability to reconfigure the firm’s asset structure and accomplish the necessary internal and external transformation (Amit and Schoemaker, 1993). Change is costly, and so firms must develop processes to find high-payoff changes at low costs. The capability to change depends on the ability to scan the environment, evaluate markets, and quickly accomplish reconfiguration and transformation ahead of the competition. This can be supported by decentralization, local autonomy, and strategic alliances.
Over time, a firm’s assets may become co-specialized, meaning that they are uniquely valuable in combination. An example is where the physical assets (e.g., plants), human resources (e.g., researchers), and intellectual property (e.g., patents and tacit knowledge) of a company provide a synergistic combination of complementary assets. Such co-specialized assets are therefore more valuable in combination than in isolation. The combination gives a firm a more sustainable competitive advantage (Teece, 2009; Douma and Schreuder, 2013).
If capabilities are dependent on co-specialized assets, it makes the coordination task of management particularly difficult. Managerial decisions should take the optimal configuration of assets into account. Asset orchestration refers to the managerial search, selection, and configuration of resources and capabilities. The term intends to convey that, in an optimal configuration of assets, the whole is more valuable than the sum of the parts.