Toward a dynamic capabilities framework

Terminology

Teece, et al (1997) facilitate theory development and intellectual dialogue as following:

Factors of production – as ‘undifferentiated’ inputs available in disaggregate form in factor markets (land, unskilled labor and capital)

Resources – as firm- specific assets are difficult if not impossible to imitate (trade secrets and certain specialized production and engineering experiences)

Organizational routines/competences – as firm – specific assets are assembled in integrated clusters spanning individuals and groups to enable distinctive activities to be performed (quality, miniaturization and systems integration)

Core completeness – as a firm’s fundamental business as core by looking across the range of a firm’s (and its competitors) products and services

Dynamic Capabilities – as a firm’s ability to integrate, build and reconfigure internal and external competences to address rapidly changing environment

Products – as a firm’s end products are the final goods and services on utilizing the competences that is possess and relative to its competitors at any point in time depend upon its competences (price, quality, etc)

Markets and strategic capabilities

Teece, et al (1997) explained the different approaches to strategy view sources of wealth creation and the essence of the strategic problem faced by firms. The key point, however, is that the properties of internal organization cannot be replicated by a portfolio business units amalgamated just thorough formal contracts as many distinctive elements of internal organization simply cannot be replicated in the market. Teece, et al (1997) also explained organizational processes, shaped by the firm’s asset position and molded by its evolutionary and co-evolutionary paths, explain the essence of the firm’s dynamic capabilities and its competitive advantage.

Processes, positions, and paths

Teece, et al (1997) argue that the competitive advantage of firms lies with its managerial and organizational processes, shaped by its (specific) asset position, and the paths available to it by categorized into:

Organizational and managerial processes – whereby organizational processes have three roles:  coordination/integration (a static concept); learning (a dynamic concept); and reconfiguration (a transformational concept)

Positions – whereby the strategy posture of a firm is determined not only by its learning processes and by the coherence of its internal and external processes and incentives, but also by its specific assets by illustrative classes (technological, financial, reputational, structural, institutional, market assets and organizational boundaries)

Paths ­­– whereby a firm can go is a function of its current position and the paths ahead. (path dependencies, technological opportunities)

Replicability and imatatability of organizational processes and positions

Replicability – involves transferring or redoploying competences from one concrete economic setting to antoher. Teece, et al (1997) argue competence and capabilities, and the routines upon which they rest, are normally rather difficult to replicate.

Imatiation –  simply replication performed by a competitor. Teece, et al (1997) argue competitive markets, it is the ease of imitation that determines the sustainability of competitive advantages.

Conclusion

Dynamic capabilities and strategic management discussed by Teece, et al (1997) in this paper have merely sketched an outline for a dynamic capabilities approach. Further theoretical and empirical research is critical to helping a firm to achieve as sustainable competitive advantage and lead to superior firm performance.

References

Teece, D.J., Pisano, G. & Shuen, A. (1997) Dynamic Capabilities and Strategic Management, Strategic Management Journal, Vol. 18, No. 7, pp. 509-553.