Dynamic capabilities and their indirect impact on firm performance

TLDR

This article empirically explores whether dynamic capabilities affect firm performance directly or indirectly. The study constructs a dynamic capabilities measure and uses structural equation modeling to test if its impact on performance is mediated by operational, marketing, and technological capabilities across 271 Greek manufacturing firms under varying environmental dynamism. Results show dynamic capabilities influence performance only indirectly through operational capabilities, with no significant direct effect, and this pattern holds across high and low environmental dynamism.

Abstract

This article seeks to empirically explore the relationship between dynamic capabilities and firm performance. In particular, it addresses the question of whether dynamic capabilities impact directly or indirectly on performance. In doing so, the article articulates and measures a construct of dynamic capabilities and using structural equation modeling it examines whether their impact on performance is mediated through operational—marketing and technological—capabilities. The proposed model is tested in different levels of environmental dynamism using data on 271 Greek firms belonging to the manufacturing sector. Empirical findings suggest that dynamic capabilities impinge on operational capabilities which in turn have a significant effect on performance. Direct effects on performance are found to be insignificant. Furthermore, similar effects seem to hold for both higher and lower levels of environmental dynamism. Theoretical and practical implications are discussed.