Dynamic Capabilities

Dynamic capabilities (DC) refers to the capacity of an organization to adapt its competencies to the requirements of its competitive environment. As such, they are considered a fundamental factor in the development of sustainable competitive advantage, particularly in highly dynamic markets.

The actual definition of the construct has been the subject of debate among scholars in both organization theory and strategic management. The first definition proposed by David Teece, Gary Pisano, and Amy Shuen in 1997 identifies dynamic capabilities in “the firm's ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments.” A different conceptualization was then brought forth by Kathleen Eisenhardt and Jeffrey Martin in 2000, who focus on the unstructured, experiential, and improvisational nature of these types of competencies in highly turbulent environments. Finally, Maurizio Zollo and Sidney Winter bring forth in 2002 a critique of the previous conceptualizations and define a dynamic capability as “a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness.” The key elements of this approach lie in the stability and replicability of the action pattern, as well as in the identification of operating routines as the objects of manipulation. It thus distinguishes it from ad hoc problem solving, especially of an improvisational nature, and avoids any reference to environmental dynamism as a requirement for the conceptualization of dynamic capabilities. It also limits the requirement of performance enhancement to the simple “pursuit of improved effectiveness,” thereby avoiding the well-known logical circularities that have plagued many discussions about organizational capabilities.

Examples of dynamic capabilities include process research and development (specific routines set in place to adapt manufacturing or operating routines, e.g., total quality management processes), reorganization or restructuring routines (aimed at the adaptation of structures, incentives, and processes in the divisions and at the corporate level), and post-acquisition integration capabilities (since they aim to change and align processes in the acquired as well as the acquiring organizations).