Business Strategy

Presentation by

Christopher
Lipp
Senior Lecturer
Innovation and
UMSDQ5-15-3
Enterprise

Study Unit 3:
RBV & Competences 2:
Dynamic Capabilities
So far… “Outside In” – Porter’s View

 Competitive advantage results from choosing a

position. Firms making trade off choice with
aligned activities sustain advantage.
… and “Inside Out” – Barney’s View
 Competitive advantage results from bundles of
resources within the firm (Core Competencies)

 Core competencies = combinations of tangible

and intangible resources…
 … that are utilised in current revenue generation
 … and that pass the VRIO test.

 Managers should aim to compete at the level of

competencies
(rather than achieving short term advantage in end
product markets)

but…
RBV has limitations
1.The Resource-Based View of Strategy is difficult
for oganizations to implement

2.No consistency/consensus in use of

terminology

3.The RBV is criticised for providing little

guidance on how to build, manage and change
competencies

4.How firms can respond to changes in the

competitive environment (especially in rapidly
changing environments) is not addressed.
Gaining Competitive Advantage

Constant

Complex System
Unique
of Activities
Resource(s) not
aligned to market
easily obtained
needs
Resource DO NOT MIX Activity

THEORIES
Dynamic Capabilities
Ability to
Ongoing series of
recognise change
resource advantages
and move more
quickly than
others
Dynamic
 “Dynamic Capabilities”
Teece and Pisano (1994) extend RBV with the concept of
“dynamic capabilities” which is:

“… the firm’s [consistent] ability to

integrate, build, and reconfigure
competences to address rapidly changing
environments
(Teece & Pisano 1994)

“Applying core competencies sooner, more astutely

(intelligently) and more fortuitously (successfully) than others is
source of competitive advantage in high velocity (dynamic)
markets”
Enables to gain a sequence of temporary competitive
advantages
 Series of Temporary Advantage
RBV
Advantage

Time

RBV: Competitive advantage is obtained through

a set of resources that a firm possesses.

Assumption is that the advantage provided by a

resource does not fade over time…
 Series of Temporary Advantage
RBV
Advantage
Dynamic Capabilities: Advantage of any resource is
temporary in a rapidly changing environment.

Firms need to move on and create or find new

sources of advantage. Time

Advantage Dynamic Capabilities

Time
Need to develop consistent and repeatable processes and
routines
The challenge
• Remember: Strategy is about the long term.

• We (as managers) do not want to leave anything to

chance.
• While core competencies provide competitive
advantage, that advantage is still seen as temporary.
• Hence, we must have formal mechanisms to make
sure that our mix of core competencies does not
become obsolete.

• In sum, we need to be able to:

o Generate and absorb knowledge (innovate, learn) to
find new competencies and how to apply them.
o Manage and deploy competencies we have
appropriately.
 Consistently Deployed Processes
Dynamic Capabilities are made up of three types of
routines:

“Sensing” “Seizing”

Learning Managing
Consistent routines that
generate and absorb Core
knowledge

Competencies

“Transforming”
Reconfiguring
Based on Teece and Pisano,
(1994)
and Wang and Ahmed (2007)
 How does an organisation
“learn”?
Insight and ideas initially occur to individuals
and then are absorbed by the firm.

nn ing
S ca Exp
lora
tion
Individual
(e.g. Experiences, Intuition)
sat i on
So ci al i

Group t ion
(e.g. Dialogue/adjustment) i onal i sa
i t ut
Inst
Exp Organisation
loita
tion (e.g. policies/routines/
standards/patents)

Based on: Crossan et al (1999)

and Nonaka (1995) March (1991)
 So… how do organisations
ensure that they systematically
learn?
- By maximising individual exposure to learning
opportunities
(Internal/External e.g. alliances, secondments, hiring new staff and development, external
Sensing

scanning)

- By facilitating knowledge articulation and sharing

via dialogue
(e.g. communication, conferences, project teams, forums, staff transfers, strategy process)

- By enabling the codification of learning

(e.g. organisational structures, specialist teams,
‘living’ policies and procedures)
 How does an organisation
“learn”?
Insight and ideas initially occur to individuals
and then are absorbed by the firm.
Sen
ing sin
Sc a nn Exp g
lora
tion
Individual
(e.g. Experiences, Intuition)
sat i on
So ci al i

Group t ion
(e.g. Dialogue/adjustment) i onal i sa
i t ut
Inst
Exp Organisation
Sei loita
zi n tion (e.g. policies/routines/
Tra g&
ns f standards/patents)
orm
i ng
Based on: Crossan et al (1999)
and Nonaka (1995) March (1991)
 Managing and allocating
Specific formal mechanisms and processes in the management and
development of the portfolio of competencies
Dynamic Capabilities are made up of three types of
routines:
“Sensing” “Seizing”

Learning Managing

Core Managing competencies

that you have, as effectively
as possible.
Competencies

“Transforming”
Reconfiguring
Based on Teece and Pisano,
(1994)
and Wang and Ahmed (2007)
 Challenge of Corporations
• Challenge of focusing on competencies in typical SBU
structures
Management focus
in traditional firm
HQ

SBU 1 SBU 2 SBU 3 SBU 4

focus on End End End End

Market Market Market Market
oss SBUs 1 2 3 4

• Can result in underinvestment in competencies, imprisoned

resources and bounded innovation and prioritisation
Source: Prahalad and Hamel
(1990),
 What are ways to manage and
allocate competencies
systematically?
Clear internal formal coordination processes
- Organisational structures that balance control
and flexibility
e.g. Strategic architecture, committees, networks…
Seizing

- Processes for allocating competencies and

resources to exploit new market opportunities
e.g. venturing, allocation process, product development

- Encouraging aligned behaviour

e.g. incentive and decision systems, formal and informal
communication, culture, HRM systems
 Transforming and reconfiguring
Specific formal mechanisms and processes in the management and
development of the portfolio of competencies
Dynamic Capabilities are made up of three types of
routines:
“Sensing” “Seizing”

Learning Managing

Core

Competencies About renewal.

Consistent routines to create
Adding, transferring,
or add new competencies
shedding… competencies
and dispose or remove old
competencies. “Transforming”
Reconfiguring
Based on Teece and Pisano,
(1994)
and Wang and Ahmed (2007)
 How do firms systematically
transform their portfolio of
competencies?
• Transformational routines required for consistent
“unlearning” and adoption of new mindsets and
knowledge
Transforming

• A mix of incremental and step change

includes formal processes to “add” and integrate
new competencies
e.g. R&D, strategic alliances, M&A

• Managers need to see the need to change to

overcome inertia. This may include major
organisation design, culture and leadership
change
Source: Volberda et al (2001), Ambrosini et al (2009) and Sune and Gibb (2013)
 3 areas of consistently deployed
routines
Sensing Seizing
Learning Managing
• Experimentation and absorption • Co-ordination
• Learning Processes (internal and • Values and behaviours
Core • E.g. Strategic
external)
• E.g. HRM, Partnerships, Market Architecture, Strategic
Scanning, forums, networks planning, Incentives,
allocation committees
Competencies

Transforming
Reconfiguring
• Capacity to add and discard
resources e.g. R&D, Alliance
Function, M&A, culture and
organisational change
What to look for?
When assessing the firm from the context of dynamic
capabilities perspective you are looking for evidence
that the firm

 has deliberately put in place…

 a comprehensive set of repeatable processes/
mechanisms…
 to manage, deploy and develop its portfolio of
competencies and resources.

Common mistakes
• Dynamic capabilities act on the mix of competences and
resources – they are not part of one resource or
competency.
• You need to identify the specific, deliberate process. You
cannot claim the firm uses dynamic capabilities just
Application Advice
• When developing strategy using dynamic capabilities or
analysing a firm you are look for specific, deliberate and
consistent routines/processes operating in the
organisation

• You can’t infer their presence as a result of the firm (say)

innovating. You need to identify and evidence the sensing,
seizing and transforming routines specifically.

• Remember, dynamic capabilities act on the resource and

competency portfolio of the firm and so are not part of any
one competency

• Be careful not to mix up competencies and dynamic

capabilities (e.g. R&D is better seen as a DC as in most
casesNB:
a R&D competency
Remember will not
in a full strategic passyou
analysis a VRIO
will nottest).
just use one theory
and so it is OK to leave aspects of the firm to another analysis
Critique of dynamic
capabilities
 Need to define carefully otherwise everything is a
dynamic capability!

 As dynamic capabilities are simply processes and

routines… what stops others doing the same thing?
Can you not always be better in their application
than your competitors?

 Therefore… isn’t the advantage still based on the

resources you possess. So need RBV theory?

 OR does it require every aspect of the organisation

to be aligned? So Porter’s activity theory?
 To conclude
 Dynamic capabilities are about deliberate and specific
repeating processes that manage and renew a firm’s
resources and competencies

 They provide sustainable competitive advantage through the

organisation continually generating new resource
advantages

 Series of temporary competitive advantage generated by

consistent processes to create, deploy and renew the firms
resources and competencies (e.g. specific routines in
internationalising, cooperation, knowledge management,
resource allocation)

 Three types of dynamic capabilities (Learning, Managing

Transforming) where firm must put in place formal
processes (you need to be specific)

 Need to identify/put in place specific deliberate routines to

show presence/develop dynamic capabilities
Next week
Lecture on Blue Ocean

Seminars on Dynamic Capabilities

Mandatory preparation for seminars:

Watch and take notes:
Prahalad, C.K. and Hamel, G. (1990). “The Core
Competence of the Corporation”, Harvard Business
Review, 68, 3, pp. 79-91.

Case study:
prepare your answers to
the CEMEX case study Part 2
See you next week!