Dynamic capabilities (DC)

The RBV has rightly been criticized for its static nature (Priem & Butler, 2000).

Even though resources can meet VRIN criteria today, the same resources can be useless tomorrow, as the examples of Kodak and Nokia indicate. The DC approach addresses this fundamental problem and suggests that resources and

capabilities must be developed, changed, and revamped as the market conditions change (Augier & Teece, 2009). Long and Vickers-Koch (1995) distinguished between the core capabilities that provide today’s competitive advantage (critical core capabilities) and the core capabilities that will provide tomorrow’s competitive advantage (cutting edge core capabilities). Cutting edge core capabilities are not the source of today’s competitive advantage but can become valuable as markets and business conditions change. Some scholars have stated that there is no such thing as a sustainable competitive advantage anymore because of the turbulence and turmoil in many industries (D’Aveni, 1994). The DC approach became popular in the late 1990s. Scholars were first interested in understanding how some firms were able to succeed in high-velocity markets (Eisenhardt, 1989a), particularly during the dot-com boom (Eisenhardt & Sull, 2001). Accordingly, the original idea behind DC was outside-in as the approach stressed the importance of developing capabilities to address rapidly changing business conditions. However, later on, the dynamic capability concept has been used to explain how firms redirect themselves by changing their resource bases.

The DC approach views strategy as something created both inside-out and outside-in and thus borrows elements from both the Industrial Organization (IO) and the resource-based perspectives. In the era of Web 2.0 (including social media companies and platform-based business models), the term New Dynamic Capabilities has been used to highlight that the pace of change is ten times faster in a globally networked business environment, which poses several challenges for the development and deployment of organizational capabilities (Shuen & Sieber, 2009). Hence, the discussion of new dynamic capabilities traces the discussion of DC back to its roots.

IBM has been used as an example in both the academic literature and managerial books to illustrate how firms can recreate themselves through reorganizing structures, renewing strategy work, revamping procedures, and modifying resources (see Gerstner, 2003; Hamel, 2000; Harreld, O’Reilly & Tushman, 2007; Lloyd & Phillips, 1994; O’Reilly & Tushman, 2009; Tushman & O’Reilly, 1996). IBM, also known as the Big Blue, has become a textbook example of how a large corporation can undertake a total makeover from a product-based firm toward a pure service company. A corporation capable of accomplishing such a strategic renewal is labeled an ambidextrous organization (see Birkinshaw &

Gibson, 2004; Cyert & March, 1963; March, 1991; O’Reilly & Tushman, 2009) meaning that the firm is able to apply both exploration (radical innovation) and exploitation (taking advantage of current resources) strategies simultaneously.

Tushman and O’Reilly (1996) call this an ability to manage both evolutionary and revolutionary change, meaning that the firm is able to pursue both incremental improvement and discontinuous innovation at the same time.

Teece (2007) has conceptualized dynamic capability as a firm’s capability to sense and seize new business opportunities in the markets and reconfigure its intangible and tangible resources to address rapidly changing environments.

Therefore, the DC approach holds that a firm can be successful by changing the market conditions proactively or by adapting to changed circumstances reactively. Wang and Ahmed (2007) found in their literature review that the dynamic capabilities include three main component factors: 1) adaptive capability, 2) absorptive capability and 3) innovative capability. Having adaptive capability means a firm has the ability to identify and take advantage of emerging market opportunities (Chakrawarthy, 1982), while having absorptive capability refers to the firm’s ability to recognize the value of new, external information, and to absorb and commercialize it (Cohen & Levinthal, 1990). The roots of innovative capability lie in Joseph Schumpeter’s (1970) concept of creative destruction and it addresses a firm’s ability to shake up and destroy existing market structures by developing new products, services, organizational processes, or technologies. The main idea is that entrepreneurs and new technologies can create disequilibrium in the market, thus providing opportunities to gain economic rents through new market shaping innovations.

Researchers view the relation between the firm’s sustainable competitive advantage and dynamic capabilities differently. For instance, Eisenhardt and Martin (2000) do not consider dynamic capabilities as the source of a firm’s SCA.

Some scholars compare DC to a firm’s threshold capabilities (see Long &

Vickers-Koch, 1995), thus suggesting that dynamic capabilities only allow a firm to achieve the minimum requirements in the markets, not necessarily to exceed them. On the other hand, some scholars (see Teece, 2007) stress that DC is the key source of a firm’s SCA. Eventually, these firm’s regenerative capabilities (see Ambrosini, Bowman & Collier, 2009) facilitate a firm’s learning capability (learning to learn) to adopt to new circumstances. Strategic learning refers to a firm’s competence building and leveraging processes (Sirén, Kohtamäki &

Kuckertz, 2012), including the creation, assimilation, and internalization of strategic knowledge in a way that improves the firm’s competitiveness (Kuwada, 1998; Thomas, Sussman & Henderson, 2001). Strategic learning resembles the concept of traditional organizational learning, which refers to a process of creating, retaining, and transferring knowledge within a firm (Easterby-Smith, Crossan & Niccolini, 2000; Huber, 1991; Levinthal & March, 1981). Learning orientation (see Calantone, Cavusgil & Zhao, 2002) refers to the components of commitment to learning, shared vision, open-mindedness, and intraorganizational knowledge sharing. Strategic learning is thus close to, yet somewhat distinct from, the concept of dynamic capabilities. Typically studies that have adopted the strategic learning concept use quantitative research

methods whereas studies applying the dynamic capabilities concept utilize qualitative research methods. Because the articles in this dissertation are mainly based on the qualitative research method, the term dynamic capabilities is used throughout the dissertation.

Organizational routines refer to the patterns of activities that enable a firm to find a solution to specific problems (Teece, Pisano & Shuen, 1997) and advance the dynamic capability theory. These routines enable a firm to get things done and are established in both group and individual behavior (Teece, 2012). Extant literature on organizational change considers dynamic capabilities “as the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die” (Eisenhardt &

Martin, 2000: 1107). These new strategic assets are increasingly formulated through developing routines to execute successful acquisitions and alliances (Dyer, Kale & Singh, 2004; Eisenhardt & Martin, 2000), suggesting the importance of external assets to the firm’s success (Möller & Svahn, 2003).

Organizational routines need to be revamped to address changes in the business environment. In sum, organizational routines are described as repeatable working methods and practices that organization members have adapted to get things done now and in the future.