Dynamic Capabilities

Dynamic Capability(DC) is defined as the sensing-seizing-reconfiguring capability. Sensing capabilities refer to analytical systems and individual capabilities to learn, detect, filter, shape, and measure technological and market opportunities. Seizing capabilities refer to corporate structure, procedures, design, and incentives to occupy technology and market opportunities. Reconfiguring capabilities refer to the corporate ability to continuously (re)align firm-specific tangible and intangible assets and operating modes in line with market changes. The absorptive capacity to evaluate and acquire external information or knowledge (Cohen and Levinthal, 1990) is in line with the seizing capabilities, while the combinative capability to realize technology or market opportunities with outcomes (Kogut and Zander, 1992) by combining and utilizing existing knowledge is similar to the reconfiguring capabilities. In addition, the learning ability to improve existing operational capabilities with new knowledge, and the coordination ability to coordinate or deploy resources and activities (Nieves and Haller, 2014; Pavlou and El Sawy, 2011; Vanpoucke et al., 2014).

DC consists of sensing-seizing-reconfiguring capabilities, and each capability is further subdivided into four activities, respectively as compose Teece’s DC in a great detail (Teece, 2007).

First of all, sensing capabilities consist of four detailed activity areas: 1) internal R&D and selection processes of new technologies, 2) monitoring processes of external science and technology development, 3) monitoring processes of innovation within the supply chain and target market segments, and 4) observation processes of changes in customer needs. Seizing capabilities consist of four detailed activities: business model design, selecting corporate boundaries, selecting investment decision protocols, and building organizational loyalty and commitment (organizational efficiency management). Finally, reconfiguring capabilities consist of four detailed activities: decentralization, co-specialization, governance, and knowledge management (Teece, 2007).

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 DCs into customer-oriented DCs and innovation-oriented DCs.

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. 1334.

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).

Source: Teece (2007), p. 1340.

References

Cohen, M. and Levinthal, D. (1990) ‘Absorptive Capacity Absorptive Capacity’, Administration Science Quarterly, 35(), pp. 128-152.

Kogut, B. and Zander, U. (1992) ‘Knowledge of the firm, combinative capabilities, and the replication of technology’, Organization Science, 3(3), pp. 383-397.

Nieves, J. and Haller, S. (2014) ‘Building dynamic capabilities through knowledge resources’, Tourism Management, 40(0), pp. 224-232.

Pavlou, P. A. OA El sawy (2011). ‘Understanding the Elusive Black Box of Dynamic Capabilities,’ Decision Sciences, 42(1), pp. 239-273.

Vanpoucke, E., Vereecke, A. and Wetzels, M. (2014) ‘Developing supplier integration capabilities for sustainable competitive advantage: A dynamic capabilities approach’, Journal of Operations Management, 32(7-8), pp. 446-461.

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.

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.