Dynamic Capabilities and
Strategic Management
David J. Teece; Gary Pisano; Amy Shuen
Strategic Management Journal, 1997
BADM545, Fall 3012; Prepared by: Hyunsun Kim
Motivation
• Fundamental Question in Strategy
• How do firms achieve and sustain competitive advantage?
• Sources of wealth creation and capture by firms
• Environmental Conditions
• Schumpeterian world of innovation-based competition,
price/performance rivalry, increasing returns, and the
‘creative destruction’ of existing competences
• Research Question
• How and why certain firms build competitive advantage in
regimes of rapid change?
Theoretical Background
Approaches on the Sources of Competitive Advantages
• Market Position Advantages
• Competitive forces approach (Porter, 1980)
• Emphasis on industry structure; five industry level forces
• Strategic conflict approach (e.g., Shapiro, 1989)
• Game theoretic model, analyzing competitive interaction between
rival firms, and market environment; strategic moves
• Firm-level Efficiency Advantages
• Resource-based perspective(Penrose, 1959)
• emphasizes firm-specific resources leading to lower costs or higher
quality products
• Dynamic capabilities
Dynamic Capabilities Approach
• An efficiency-based approach
• firm-specific capabilities that can be sources of advantage, and
to explain how combinations of competences and resources can
be developed, deployed, and protected.
• Elements
• management capabilities, and
• difficult- to-imitate combinations of organizational, functional
and technological skills,
• New dimensions to strategic research
• the management of R&D; product and process development;
technology transfer; intellectual property; manufacturing; human
resources; and organizational learning.
Dynamic Capabilities
• Definition: the firm’s ability to integrate, build, and
reconfigure internal and external competences to address
rapidly changing environments
• Emphasis: an organization’s ability to achieve new and
innovative forms of competitive advantage
• Why Firm-Level Capabilities?
• Capabilities/competence cannot be readily assembled through
markets
• many distinctive elements of internal organization cannot be
replicated in the market, or just through formal contracts
Processes, Positions, Paths
• Processes: the way things are done in the firm (i.e., routines*,
patterns of current practice and learning)
• Position: current specific endowments of technology,
intellectual property, complementary assets, customer base,
and its external relations with suppliers and complementors
• Paths: the strategic alternatives available to the firm, path
dependencies
*routines:
patterns of interactions that represent successful
solutions to particular problems
Processes
Organizational and Managerial Processes
• Coordination/integration: static
• Rationality or coherence to processes and systems
• => requirements from radical or architectural innovation might
mismatch with the incumbents’ existing organizational processes
• Learning: dynamic
• Social and collective processes
• => potentials for inter-organizational learning, through
collaborations and partnerships
• Reconfiguration: transformational
• Change is costly for organizations
• => ability to scan the environment and flexibility becomes
important (e.g., decentralization; local autonomy)
Positions
= specific assets
• Technological assets: know-how. Might be protected.
• Complementary assets: i.e., prior commercialization activities
• Financial assets: the firm’s cash position
• Reputational assets: an intangible asset in the market
• Structural assets: degree of hierarchy, governance
• Institutional assets: regulatory systems and public policies
• Market (structural) assets: product market position
• Organizational boundaries: degree of integration
Paths
• Path dependencies
• “history” (the firm’s investments and repertoire of routines)
matters
• May “lock-in” on inferior technologies
• Technological opportunities
• Prior R&D activity confines the feasible opportunities for the firm
• Managerial perceptions are conditioned by the firm’s past
experiences
Replicability and Imitability
• Replication
• transferring or redeploying competences
• Enables market expansions (geographical and product)
• Foundations for learning and improvement
• Imitation
• replication performed by a competitor
• Possible barrier: intellectual property rights
Paradigms of Strategy