Innovation: Teece and Exploring the Core Components of Dynamic Capabilities

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Exploring the Core Components of Dynamic Capabilities


The concept of dynamic capabilities was introduced by Teece & Pisano (1994) and Teece, Pisano, & Shuen (1997)who asserted that in a dynamic environment a firm’s competitive advantage will rest on the firm’s internal processes and routines that enable the firm to renew and change its stock of organizational capabilities thereby making it possible to deliver a constant stream of new and innovative products and services to customers. Capabilities are complex bundles of skills and knowledge that are exercised through organizational processes. Capabilities thus describe the effectiveness in undertaking processes relative to the competition (Nelson & Winter, 1982), and the literature has also shown a close link between capabilities and their underlying processes (Sambamurthy, Bharadwaj, & Grover, 2003; Tecce, 2007; Wnag & Amhed, 2007).

A fundamental issue for researchers and managers is to understand and leverage dynamic capabilities – the ability to reconfigure operational competencies to address turbulent environments. However, previous porter has viewed dynamic capabilities have been viewed as abstract phenomena with no set prossesses therefore hard, virtually impossible to the competitor to replicate. To enable managers to leverage dynamic capabilities, this research proposes a set of core components to capture the effectiveness in undertaking the key processes of dynamic capabilities, in terms of effectively undertaking the reconfiguration process. Which are sensing capability, absorptive capability, integrative capability and innovative capability. Finally, some implications for managers are also discussed.

Keywords: dynamic capabilities, core components of dynamic capabilities, firm performance.


How firms create and sustain competitive advantage is the fundamental issue in the field of strategic management(Rumelt, Schendel, & Teece, 1994; Zott, 2003). The dominant paradigm in the field during the 1980s was the competitive forces approach developed by Porter (1980). The approach, rooted in the structure-conduct -performance paradigm (SCP paradigm) of industrial organization (Mason, 1949; Bain, 1959), emphasizes the actions a firm can take to fcreate defensible positions against competitive forces. A second approach, referred as a strategic conflict (e.g., Shapiro, 1989), is closely related to the first in its focus on product market imperfections, entry deterrence, and strategic interaction. The strategic conflict approach uses the tools of game theory and thus implicitly competitive outcomes as a function of the effective ness with which firms keep their rivals off balance through strategic investment, pricing strategies, signaling, and the control of information. Both the competitive forces and the strategic conflict approaches, appear to share the view that rents flow from privileged product market positions.

Another distinct class of approaches, called resource-based view (RBV), emphasizes building competitive advantage through capturing entrepreneurial rents stemming from fundamental firm-level efficiency advantages. These approaches have their roots in a much older discussion of corporate strengths and weaknesses; they have taken on new life as evidence suggests that firms build enduring advantages only through efficiency and effectiveness, and as developments in organizational economics and the study of technological and organizational change become applied to strategy questions. One strand of this literature, often referred to as the resource-based perspective, emphasizes firm-specific capabilities and assets and the existence of isolating mechanisms as the fundamental determinants of firm performance (Wernerfelt, 1984; Barney, 1991; Grant, 1991; Mahoney & Pandian, 1992). This perspective recognizes but does not attempt to explain the nature of the isolating mechanisms that enable entrepreneurial rents and...
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