Dynamic capabilities: What are they?

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Citation: Kathleen M. Eisenhardt, Jeffrey A. Martin (2000) Dynamic capabilities: What are they?. Strategic Management Journal (RSS)

doi: <1105::AID-SMJ133>3.0.CO;2-E 10.1002/1097-0266(200010/11)21:10/11<1105::AID-SMJ133>3.0.CO;2-E "AID-SMJ133&gt;3.0.CO;2-E" cannot be used as a page name in this wiki.


Tagged: Business (RSS) strategy (RSS), capabilities (RSS), RBV (RSS), dynamic capabilities (RSS)


Summary:

Eisenhardt and Martin's paper on dynamic capabilities can be seen as an attempt to explicitly answer critiques of Teece et als definition of DC as being tautological and vague by focusing on specific examples.

As in Teece et al. (1997), dynamic capabilities theory is described in terms of an expansion on the resource base view of organizations (RBV). Both attempt to use an analysis of processes and routines to offer a description of organizational activity with clear high-level implications for strategies that, implemented by managers, can result in higher firm performance and help explain the difference in performance among firms.

One of the best way to understand dynamic capabilities -- and one employed by the authors -- is through a definition based on the perceived shortcomings in the resource base view of the firm. In RBV, firms are treated as collections of ``resources -- examples of resources might include assetts, knowledge, or relationships to other firms. However, RBV seems to have little to say about the way that resources are created, won, or released. The result, some critics of RBV had charged, is a model of organizational interaction that is overly static. The consequence of strategy built on RBV is a strong focus on choice of resources and not enough emphasis on they are created and built.

The authors suggest that one way that DC can be understood is as a reaction and challenge to this simplified description of RBV. DC's core argument is focused on the fact that many of the most important strategic resources rarely just exist; instead, they are built or created, integrated, and then released or given up through processes or routines within firms. In this sense, DC can be viewed as a response to RBV in that it changes the focus of analysis to questions around the processes that secure and maintain resources rather than just about choice and management. DC avoids this discussion of resource choice and focuses more on one of resource development, acquisition, reconfiguration, and renewal.

Although DC can be pitched as a response to RBV, it can also be described as complementary. Eisenhardt and Martin take this tack as they describe that DC can, "enhance RBV," and elsewhere say that DC is, "at the heart of the RBV." In this sense, DC can be understood as building on the RBV; firm performance is, but is not only, based on the strategic use of firm resources. DC highlights the use of processes and routines which help secure, manage, and adapt these resources.

Eisenhardt and Martin's argument is designed to build on what the authors consider the "traditional view of Dynamic capabilities" articulated by Teece and others with their own "re-conceptualization." To start, they offer a similar definition of DCs:

The firm's processes that use resources -- specifically the processes to integrate reconfigure, gain and release resources -- to match and even create market change. Dynamic capabilities thus are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge collide, split, evolve and die.

Eisenhardt and Martin build on this definition to offer a much nuanced conceptions of DC than found in Teece et al. Often citing Teece et al. (1997), they describe the "traditional view of dynamic capabilities" as being "routines to learn routines" -- a definition critiqued as tautological by others. Instead, Eisenhardt and Martin attempt to tie their alternative conceptualization to a set of identifiable, specific, organizational and strategic processes that include product innovation, strategic decision-making, alliancing, and others which managers of firms use to build, create and alter the set of resources available to them.

Eisenhardt and Martin argue for an understanding of homogeneity through an analysis of the role of "best practices" that spread basic routines (DCs) through a wide variety of firms over time -- even through the exact details may be retained as important distinguishing features.

Eisenhardt and Martin's other major departures from the traditional model of DC seems to be focused on a key distinction based around the nature of the market in which a firm is operating. Eisenhardt and Martin divide markets into "high-velocity" and normal markets to illustrate this point. High velocity markets are very dynamic ones in which market boundaries and successful business models are unclear and market players are ambiguous and shifting. In a sense, these high-velocity markets are defined as markets in which existing knowledge and resources are less useful than the ability to quickly create new situation-specific knowledge. Eisenhardt argues that, depending on the velocity of the market, the outcome and pattern of DCs may be very different. While they offer important challenges for the traditional view of DC, these high-velocity markets also provide one of the strongest arguments in favor of the more nuanced version of DC and for a DC theory in general. The DC critique of RBV is most strong in a rapidly changing market environment. What is strategically most important is not any particular resource but the ability to reconfigure resources quickly and to adapt. In these environments, the strategic importance of more fungible processes and their relationship to firm performance is both most clear and most actionable.

Theoretical and practical relevance:

Much as Peteraf (1993) helped resolve key debates and critiques about the RBV,Eisenhardt and Martin provided another article that really helped define dynamic capabilities and provided a core citation for strategy scholars studying capabilities.


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