Learning requires common codes of communication and coordinated search procedures. 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.
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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. According to Garvin , 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 show that internal and external human resources and technological resources are related to technology commercialization. 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.
Dynamic Capabilities and Strategic Management
This can be supported by decentralization, local autonomy, and strategic alliances. An example is where the physical assets e. Such co-specialized assets are therefore more valuable in combination than in isolation. The combination gives a firm a more sustainable competitive advantage Teece, ; Douma and Schreuder, 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. The term intends to convey that, in an optimal configuration of assets, the whole is more valuable than the sum of the parts. Whether they realize it or not, managers need a theoretical understanding of enterprise growth and development.
In this article, we propose the adoption of a conceptual framework that will help executives lead their organizations in highly competitive global markets.
New applications of dynamic capability research
To be useful, a theoretical framework must be general enough to provide guidance in a variety of situations. It also calls for sufficient generality and flexibility, so that the concepts can be applicable in a wide variety of circumstances. However, the theory must not be so general and academic that it has little to do with practical management problems. Management theory is young and fragmented, and generally not much of a guide for executives, except on certain, narrow issues.
The framework presented here can be helpful with the big-picture issues. This essay presents the Dynamic Capabilities Framework Teece et al. While originated by the author of this paper, a broad panoply of scholars and executives is now contributing to its further development. The Dynamic Capabilities Framework is animated by the recognition of several global megatrends that impact the contemporary business enterprise operating in hypercompetitive environments. In particular, intermediate goods and services that might once have been hard to access are now widely available, a reality which has created a system of global specialization.
As a result of the greater ability to outsource almost anything and everything, the traditional competitive sources of differentiation based on economies of scale and scope have been eroded.
If your market is too small to capture scale economies for an input or even a whole product, then you should source from companies that have achieved them already. Textbooks need to be rewritten to recognize the new reality. Fortunately, there are other bases of competitive advantage unrelated to scale. The prime example is the generation, ownership, and management of intangible assets, which have risen to overshadow economies of scale in importance for enabling the enterprise to build and sustain a successful position.
Perhaps the most important class of intangible assets not universally available is technological know-how. Value can flow to the enterprise from the astute creation, combination, transfer, accumulation, and protection of intangible assets. But they are not naturally occurring and depend on managerial action and, in part, on national systems of innovation Nelson, Intangible assets in general are a very economically interesting asset class, with powerful implications for building and maintaining competitive advantage at the enterprise level.
They are also unlikely to be traded i. Furthermore, knowledge assets are generally costly to transfer and can even be difficult to specify fully in a contract Teece, As a result, these assets are harder to access than many other asset classes. Ironically, even in natural resource industries, profits for the business enterprise, but not necessarily for the nation-state flow fundamentally from the ownership and use of intangibles, and only less so from ownership of the resource. The highest profits flow to those who develop extraction technologies, deploy them effectively and safely, and build privileged relationships with nation states and other constituencies.
Table 1 summarizes the differences between intangible and physical assets along selected dimensions. Business-model innovations are critical to success in unsettled markets where traditional revenue and pricing models are no longer applicable. The Internet allows and requires business model innovation. In particular, the Internet requires new pricing structures because users are accustomed to getting information for free.
The other main classes of intangible assets are technological know-how, business process know-how, customer and business relationships, reputations, organizational culture and values, as well as formally identified intellectual property. The ability to prevent or punish the imitation of the key intangibles is necessary in order for the firm to capture value from its assets. Legal barriers to imitation protect some knowledge assets, although these are of limited importance in some industries due either to the pace of change or weak rights enforcement e.
Because knowledge assets by themselves will not yield value, they must almost always be combined with other intangible and physical complements and bundled as a product to yield value for a customer. Textbooks are only now starting to recognize the fundamental shifts that have taken place in the basis of competitive advantage.
The implications for business strategy, organization, and management education are monumental. The growing importance of complements both inside and outside of the firm is a case in point. The vital role of complementors changes the nature of the required technology management approaches and business strategies because innovation in one product or service often increases the value of their complement s.
For example, improvements in software help drive demand for computing hardware, and vice-versa. Likewise, the development of high-octane fuels in the s by oil refiners enabled the creation of high-compression engines by auto manufacturers. It is also the case that intangible assets are rarely recorded on corporate balance sheets.
As a consequence, existing accounting-based frameworks have a hard time coming to grips with them. Alan Greenspan, former chairman of the U. Conceptual products are steeped in intangible assets. These changes in the economy clearly call for a new theoretical framework for understanding and guiding the growth of firms increasingly involved in creating and marketing conceptual, rather than physical, products.
The Dynamic Capabilities Framework recognizes these considerations. As new bases of competitive advantage have gained in significance, old ways of looking at competition have been supplanted. Hence, firms need to take a more comprehensive view of the environment in which they must compete. Such a view needs to include not only buyers and suppliers but the local market for skilled workers since they are not entirely mobile internationally , universities for access to both highly educated talent and faculty research , financial institutions especially venture capital , the legal system especially intellectual property law and employment law , and the domestic political situation.
Figure 1 displays these factors and their interaction.
Dynamic Capabilities and Strategic Management - Oxford Scholarship
In order to embrace these new elements of competition, the Dynamic Capabilities Framework has emerged. It offers a comprehensive, multidisciplinary approach to managerial decision-making. No other framework offers, or purports to offer, a comprehensive and multidisciplinary, research-based perspective on key strategic challenges. The Dynamic Capabilities Framework helps identify the factors likely to impact enterprise performance. It is gradually developing into a interdisciplinary theory of the modern corporation Teece, This includes the external linkages that have gained in importance, as the expansion of trade has led to greater specialization.
Dynamic capabilities can usefully be thought of as belonging to three clusters of activities and adjustments: 1 identification and assessment of an opportunity sensing ; 2 mobilization of resources to address an opportunity and to capture value from doing so seizing ; and 3 continued renewal transforming. These activities are required if the firm is to sustain itself as markets and technologies change, although some firms will be stronger than others in performing some or all of these tasks.
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Performance of these activities draws on all the skills and disciplines used in the curriculum of business schools everywhere. The Dynamic Capabilities Framework helps organize and harness academic disciplinary knowledge so as to apply it to the task of building durable competitive advantage at the enterprise level. Sensing is an inherently entrepreneurial set of capabilities that involves exploring technological opportunities, probing markets, and listening to customers, along with scanning the other elements of the business ecosystem.
As this example implies, Sensing requires managerial insight and vision — or an analytical process that can be a proxy for it.
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Seizing capabilities include designing business models to satisfy customers and capture value.