Diagnose Organisational Dynamic Capabilities

Dynamic Capabilities Framework

What does capturing a competitive advantage look like? Or how is it created? Defined as the ‘endogenous growth or building’ of a firm, how is reorganization maintained? The process of creating a competitive advantage and maintaining organizational capabilities to secure a sustainable competitive advantage is understood as an evolutionary process. As the existing organization was reorganized and a completely new organization was created (Teece, 2007). it can be described as a reorganization or integration activity that harmonizes with existing competencies when entering a new area or industry out of an existing business area or industry.

The Dynamic Capability(DC) is an effort to understand the key variables and relationships that need to be recalibrated to protect and utilize intangible assets to achieve superior corporate performance and avoid risk. Include spin-outs and spin-offs to maintain good performance. Dynamic competencies, at least analytically, are subdivided into sensing, capturing, and transforming activities). DC is largely classified into two competing viewpoints such as the RBV and the Capability-based View (CBV). In the former, DC is conceptualized as a routine or process that integrates and reorganizes resources or resource bases (Eisenhardt, 1989; Eisenhardt and Martin, 2000), or as a pattern of collective activity (Zollo and Winter, 2002) that creates or modifies operational routines from a broad RBV that recognizes DC as another type of resource as the ability to create resources.

1. Sensing (Opportunities and Risk) > 2. Seizing (Build and Execute Capabilities) > 3. Reconfiguring (Integrate and Decommissioning)

Sensing is the ability of companies to transform to respond to the environment when the environment changes, and to secure competitiveness by responding quickly. Seizing is the ability to select, build, and execute the most appropriate opportunities for a company at the right time among various opportunities identified through cognitive capabilities. Therefore, finally, the organization's response to change and its structure act as important factors in reconfiguration and transforming capacity.

Sensing: Opportunities & Innovation / Risk & Threat Technologies and Markets

Study of Teece (2007), sensing consists of a process to direct internal R&D and select new technologies, a process to tap developments in exogenous science and technology, a process to tap supplier and complementor innovation, and a process to identify target market segments, changing customer needs, and customer innovation. The four sessions of sensing activity (capability) can be classified into two subsectors: the Analyzing capability to analyze the environment of external innovation, internal innovation, and R&D activities to learn market opportunities; and the identifying capability to recognize market segments, ecosystems and industrial trends, and changing customer needs. The former can be summarized as innovation (technology) orientation, and the latter can be summarized as customer (market) orientation. In the same vein, Ordani and Parasuraman (2011) classified DC into customer-oriented DC and innovation-oriented DC.

Source: Teece (2007), p. 1326.

Seizing: Structure Designs & Build Execution (internal)/ Procedure (in-external)

According to Teece’s (2007) argument, as the market and technology change, the capability to seize the newly emerging market opportunities results in a company’s competitive advantages. A company’s seizing capability requires the relevant corporate structure and procedures, business model design and incentive systems (Teece, 2007). A company’s seizing activity for market opportunities begins with the development and investment for commercialization, and redesigning of their business model. Based on fundamental strategies, such as cost leadership or differentiation, a business model design that reflects organizational architecture for productivity and efficiency and customer architecture for target customers should be executed (Teece, 2007).

Source: Teece (2007), p. 1326.

Reconfiguration: Technical Fitness : Combination, Reconfiguration

From the DC perspective, theorists stress that the key to sustainable profitability is the ability to recombine and reconstruct assets and organizational structures as companies grow and markets and technologies change (Girod and Whittington, 2017; Schilke, 2014). Companies must continuously align and realign internal tangible and intangible assets to suit environmental changes for sustainable growth (Teece, 2007). The continuous alignment and realignment muse be associated with decentralization and cospecialization (Teece, 2007). In addition, changes in the organizational structure are also required, and thus governance should be changed to lower costs derived from the agency problem. Also, organizational learning skills should be cultivated for efficient knowledge transfer and know-how integration (Teece, 2007).

Diagnose your Organizational Dynamic Capabilities

Teece’s (2007) definition. Teece (2007) classified DCs into 12 major activities of clusters. Embedding the words constituting the four activities such as analyzing internal R&D, tapping external R&D, tapping supplier & complementor innovation, and identifying customer needs, which are components of Teece’s (2007) sensing of DCs, converges to two clusters of analysis and identifying. In a similar research line, Rudolph (2017) developed a codebook of DCs based on corporate performance analysis. Rudolph (2017) presented the measurement of the sensing capability by simplifying them into market-oriented and technology-oriented characteristics because it is very ambiguous to distinguish among four subcategories. Therefore, in this study, we follow Rudolph’s (2017) classification in defining DCs according to 10 detailed capabilities. Sensing can be explained by the ability to analyze and identify, and seizing represents activities that (re)design business models, select decision-making protocols, build loyalty and commitment, and define enterprise boundaries. Finally, reconfiguring is presented with a focus on appropriate knowledge management, governance, cospecialization and decentralization capabilities.

The DC was constructed by redesigning the 12 detailed dimensions of Teece's (2007) DCs into 10 dimensions below table.

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References

Eisenhardt, K. M. (1989) ‘Making fast strategic decisions in high-velocity environments’, Academy of Management Journal, 32(3), pp. 543-576.

Eisenhardt, K. M. and Martin, J. A. (2000) ‘Dynamic capabilities: what are they?’, Strategic Management Journal, 20(10-11), pp. 1105-1121.

Girod, S. J. and Whittington, R. (2017) ‘Reconfiguration, restructuring and firm performance: Dynamic capabilities and environmental dynamism’, Strategic Management Journal, 38(5), pp. 1121-1133.

Rudolph, K. (2017) ‘Analyzing dynamic capabilities in the context of cloud platform ecosystems: A case study approach’, Junior Management Science, 2(3), pp. 124-172.

Schilke, O. (2014) ‘On the contingent value of dynamic capabilities for competitive advantage: The nonlinear moderating effect of environmental dynamism’, Strategic Management Journal, 35(2), pp. 179-203.

Teece, D. J. (2007) ‘Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance’, Strategic Management Journal, 28(13), pp. 1319-1350.

Zina, O. (2021) 'The essential guide to doing your research project', Sage.

Zollo, M. and Winter, S. G. (2002) ‘Deliberate learning and the evolution of dynamic capabilities’, Organization Science, 13(3), pp. 339-351.