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Dynamic Capability 1

This document summarizes and discusses the paper "Dynamic Capabilities and Strategic Management" by Teece, Pisano, and Shuen. It introduces three existing strategic management paradigms and an emerging dynamic capabilities approach. The dynamic capabilities framework views firms as having processes, positions in current markets, and potential future paths. Sustainable competitive advantage arises from capabilities that are difficult to replicate or imitate, developed through organizational processes shaped by a firm's assets and strategic options. The dynamic capabilities perspective provides an integrative view of how firms develop and renew competencies to respond to changing business environments.

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Dynamic Capability 1

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hhaider

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2009 INNOVATION MANAGEMENT

SEMINAR 4
ON THE NATURE OF TECHNOLOGICAL KNOWLEDGE AND ITS
IMPLICATIONS FOR SPECIALISATION AND INNOVATION
“Never mind ! Let’s get it to market first.“
A Discussion of :
Teece D., Pisano G., and Shuen A. 1997.

Dynamic Capabilities and Strategic Management.

Strategic Management Journal, 18, 7, 509-534.*
Prepared by
Andreas Paparitsidis, Bac Hoai tran, Hsuan-Yi Wu (Jen),
and Phillip C. Jackson

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 1

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.
STRATEGIC MANAGEMENT
DYNAMIC CAPABILITIES AND  INTRODUCTION (BAC)
- Models of strategy
1. emphasizing the exploitation of market power
(competitive forces, strategic conflict)
2. emphasizing efficiency
(resource-based perspective, dynamic capabilities approach)
Teece D., Pisano G., and Shuen A. 1997.

 TOWARD A DYNAMIC CAPABILITIES FRAMEWORK (JEN)

- Markets and strategic capabilities
- Processes, positions, and paths
- Replicability and imitatability of organizational processes and positions

 CRITIQUES (PHILLIP)

 CONCLUSION AND DISCUSSION (ANDREAS)

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 2
INTRODUCTION
-Introduce three existing paradigms
- Competitive forces
- Strategic conflict
- Resource-based
• And an emerging new paradigm – ‘dynamic capabilities’
- Processes, positions, and paths
- Replicability and imitatability of organisational
processes and positions
• - Are they interrelated – complementary or competitive?
• - Future directions?

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 3

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Dynamic Capabilities and Strategic Management

- Purpose
To provide a coherent framework which can
both integrate existing conceptual and
David J. Teece
empirical knowledge and facilitate
prescription.
- Assumption
GARY PISANO
Firms can achieve and sustain competitive
advantage by developing the dynamic
capabilities approach to address rapidly
changing environments.
AMY SHUEN

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 4

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

- Definition
• The term dynamic refers to the capacity to
renew competences so as to achieve congruence
with the changing business environment.
• The term capabilities emphasizes the key role of
strategic management in appropriately adapting,
integrating, and reconfiguring internal and
external organizational skills resources and
functional competencies to match the
requirements of a changing environment.

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 5

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

- Definition

• The term dynamic capabilities refers to the

firm’s ability to integrate, build, and reconfigure
internal and external competences to address
rapidly changing environment.
• It reflect an organization’s ability to achieve new
and innovative forms of competitive advantage
given path dependencies and market positions.

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 6

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

DYNAMIC CAPABILITIES FRAMEWORK

Processes the way things are done

(routines, patterns of practice and learning)

Positions current specific endowments

(technology, IP, complementary assets, customer base, external relations)

Paths strategic alternatives

(presence or absence of increasing returns and attendant path dependencies)

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 7

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

The competitive advantage of firms lies with its managerial and

organizational processes, shaped by its (specific) asset position,
and the paths available to it.

How firms
Transferring or positions achieve and
redeploying processes sustain
competences from competitive
one concrete advantage?
economic setting
to another paths
replication A difficult-to-replicate or
difficult-to-imitate
imitation competence must be built
Replicate by the because it cannot be bought.
firm itself or its
competitors
OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 8
Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Organizational and managerial processes

The firm’s processes and Coordination/integration

positions collectively
encompass its competences Learning
and capabilities.
Reconfiguration & transformation
DYNAMIC
Technological assets
Complementary assets
Path Technological
dependencies opportunities
Paths

CAPABILITIES
Reputational assets Financial assets Organizational processes, shaped
by the firm’s asset positions and
Institutional assets Structural assets molded by paths, explain the
essence of the firm’s dynamic
Market (structure) assets capabilities and its competitive
advantages.
Positions
Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Dynamic
capabilities
can be seen as an
emerging and
potentially
integrative
approach
to understanding
the newer sources
of competitive
advantage.

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 10

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Key Question to think:

How some organizations first develop firm-
specific capabilities and how they renew
competences to respond to shifts in the
business environment? (business processes,
Market positions, expansion paths)
Key point:
To be strategic, a capability must be honed to
a user need, unique and difficult to replicate.

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 11

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

CRITIQUES
• Logical Conceptual Framework
• Tautological
• Dynamic Capabilities - the firm's ability to
integrate, build and reconfigure internal and
external competences to address rapidly changing
environments
• Difficult to operationalize
• Lack of algorithm to translate environmental
factors into capabilities model
• Path dependency and the reconfiguration dynamic

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 12

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

CRITIQUES

• A definition of dynamic capabilities should go

beyond a reference to competence and routines to
include the firm’s ability to readapt established
routines in order to respond to the environmental
changes
• It should take advantage of the four paradigms to
solve complex problems

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 13

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Key to summarize:
• ‘Dynamic Capabilities' approach is to stress
exploiting existing internal and external firm
specific competences to address rapidly
changing environments.
• It emphasizes the development of
management capabilities, and difficult-to-
imitate combinations of organizational,
functional and technological skills.

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 14

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Paradigms of Strategy: Salient Characteristics

OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 15

Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Discussion
1. At which point should a firm decide that
instead of constantly adjusting to
changing environments, its time to
adapt the environment to its capabilities
and competences?
2. Do you believe that these four different
strategic approaches are
complementary or competitive?
Dynamic Capabilities and Strategic Management
Teece D., Pisano G., and Shuen A. 1997.

Title Dynamic capabilities: understanding strategic

change in organizations
Authors Constance E. Helfat, Sydney Finkelstein, Will Mitchell, David J. Teece…
FURTHER READING

Edition Illustrated
Publisher Wiley-Blackwell, 2007
ISBN 1405159049, 9781405159043
Length 147 pages

Title Dynamic Capabilities and Strategic

Management: Organizing for Innovation and
Growth
Author David J. Teece
Edition illustrated
Publisher Oxford University Press US, 2009
ISBN 019954512X, 9780199545124
Length 272 pages