Dynamic Capability

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Strategic Management Journal
Strat. Mgmt. J., 21: 1105–1121 (2000)

DYNAMIC CAPABILITIES: WHAT ARE THEY?
KATHLEEN M. EISENHARDT* and JEFFREY A. MARTIN
Department of Management Science and Engineering, Stanford University, Stanford, California, U.S.A.

This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.

The resource-based view of the firm (RBV) is an influential theoretical framework for understanding how competitive advantage within firms is achieved and how that advantage might be sustained over time (Barney, 1991; Nelson, 1991; Penrose, 1959; Peteraf, 1993; Prahalad and Hamel, 1990; Schumpeter, 1934; Teece, Pisano, and Shuen, 1997; Wernerfelt, 1984). This perspective focuses on the internal organization of firms, and so is a complement to the traditional emphasis of strategy on industry structure and strategic positioning within that structure as

Key words: dynamic capabilities; competitive advantage; resource-based view; dynamic markets; resources; high-velocity markets; organization theory; organizational change *Correspondence to: Kathleen M. Eisenhardt, Department of Management Science and Engineering, Stanford University, 309 Terman, Stanford, CA 94305, U.S.A.

the determinants of competitive advantage (Henderson and Cockburn, 1994; Porter, 1979). In particular, RBV assumes that firms can be conceptualized as bundles of resources, that those resources are heterogeneously distributed across firms, and that resource differences persist over time (Amit and Schoemaker, 1993; Mahoney and Pandian, 1992; Penrose, 1959; Wernerfelt, 1984). Based on these assumptions, researchers have theorized that when firms have resources that are valuable, rare, inimitable, and nonsubstitutable (i.e., so-called VRIN attributes), they can achieve sustainable competitive advantage by implementing fresh value-creating strategies that cannot be easily duplicated by competing firms (Barney, 1991; Conner and Prahalad, 1996; Nelson, 1991; Peteraf, 1993; Wernerfelt, 1984, 1995). Finally, when these resources and their related activity systems have complementarities, their potential to create sustained competitive advan-

Copyright © 2000 John Wiley & Sons, Ltd.

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K. M. Eisenhardt and J. A. Martin
than traditional RBV thinking implies. Third, effective patterns of dynamic capabilities vary with market dynamism. When markets are moderately dynamic such that change occurs in the context of stable industry structure, dynamic capabilities resemble the traditional conception of routines (e.g., Cyert and March, 1963; Nelson and Winter, 1982). That is, they are complicated, detailed, analytic processes that rely extensively on existing...
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