Dynamic capabilities and strategic management

TLDR

The dynamic capabilities framework explains how firms create and capture wealth in rapidly changing technological environments by leveraging distinctive processes, asset portfolios, and evolutionary paths, with advantage erosion tied to demand stability, internal replicability, and competitor imitation. The study finds that in fast‑changing markets, wealth creation hinges on refining internal technological, organizational, and managerial processes, and that spotting and efficiently exploiting opportunities is more critical than traditional strategizing. © 1997 by John Wiley & Sons, Ltd.

Abstract

The dynamic capabilities framework analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change. The competitive advantage of firms is seen as resting on distinctive processes (ways of coordinating and combining), shaped by the firm's (specific) asset positions (such as the firm's portfolio of difficult-to-trade knowledge assets and complementary assets), and the evolution path(s) it has adopted or inherited. The importance of path dependencies is amplified where conditions of increasing returns exist. Whether and how a firm's competitive advantage is eroded depends on the stability of market demand, and the ease of replicability (expanding internally) and imitatability (replication by competitors). If correct, the framework suggests that private wealth creation in regimes of rapid technological change depends in large measure on honing internal technological, organizational, and managerial processes inside the firm. In short, identifying new opportunities and organizing effectively and efficiently to embrace them are generally more fundamental to private wealth creation than is strategizing, if by strategizing one means engaging in business conduct that keeps competitors off balance, raises rival's costs, and excludes new entrants. © 1997 by John Wiley & Sons, Ltd.