CHAPTER 2 LITERATURE REVIEW
2.3 Dynamic Capability
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2.3 Dynamic Capability
The resource-based view on resources and capabilities provide a thorough examination of how and why firms can leverage IT and other resources to gain a competitive advantage. However, in rapidly changing business environments that are open to global competition, it requires more than the ownership of difficult to replicate assets to engage in innovation and sustainable advantages. It also requires unique and difficult to replicate dynamic capabilities.
Dynamic capabilities provide a view different from the resource-based view on taking external variables into consideration on how an organization reacts to competition. By definition, dynamic capability is the ability of a firm to integrate, build, and reconfigure internal and external competences to address a rapidly changing environment (Teece et al. 1997). Specifically, Teece et al.
(1997) proposed the following three organizational and managerial processes as core elements of dynamic capabilities: coordinating and integrating; learning; and reconfiguring. Furthermore, other researchers have suggested that dynamic capabilities also encourage and facilitate firm effectiveness and provide a firm competitive advantage (Zollo et al. 2002).
The concept of dynamic capabilities (Teece et al. 1997) has attracted increasing attention (Winter 2003; Zollo et al. 2002; Zott 2003). Teece et al. (2007) offered more insight about the approach of capabilities that give competitive advantages. They suggest that dynamic capabilities can be disaggregated into the capacity for the following reasons: (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness by enhancing, combining, protecting, and reconfiguring the intangible and tangible assets of the business when necessary. For example, the value of a resource will be dependent upon the firm's combination of resources and the path that the firm is following. Furthermore, dynamic capability is a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness.
Furthermore, some researchers view the ability of deploying IT as the dynamic capability. For example, the ability of a firm to leverage its IT capabilities to develop closer relationships and create flexible competencies represents dynamic capabilities that can lead to improved customer value (Sambamurthy et al. 2003; Sambamurthy et al. 2000).
In summary, the rationale of dynamic capability is that resource-based view has not adequately explained how and why certain firms have competitive advantage in situations of rapid and unpredictable change (Eisenhardt et al. 2000). Moreover, dynamically competitive enterprises do not just build defenses to competition. They also help shape competition and marketplace outcomes through innovation. From this perspective, strategic choice is how a firm accumulates its technological assets due to path-dependent processes of investments, learning, and decision-making that the firm adopts over time. In particular, this approach mainly emphasizes the entire mechanism based on path dependencies by which firms accumulate and refigure new resources and capabilities to respond to the highly competitive environment. The summary of definition and arguments from extant literature regarding dynamic capability is presented in Table 2.3.
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Summary
After a thorough literature search, we comparatively discovered that the resource-based view stresses the selection of resources whereas dynamic capabilities focus on capabilities for resource development and configuration. Accordingly, these two theories suggest that for firms seeking a sustained competitive advantage, the firms should understand what resources are critical and deserve to be involved in the strategy decision making. Based these theories, we developed a conceptual model to examine the strategies of firms toward competitive service innovations. As depicted in Figure 2.1, we suggest that these long-term competitive dynamic capabilities are derived from a cyclical process of integration, learning, and reconfiguration. Moreover, IT capabilities and complementary resources are the critical resources that firms should take into consideration in the process of sustaining the IT-enabled business innovations.
Figure 2.1 Perspective Toward Sustaining Business Innovation
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Table 2.3 Definition and Arguments about Dynamic Capability Dynamic Capability
(Teece et al. 1997) “The firm’s ability to integrate, builds, and reconfigures internal and external competencies to address rapidly changing environments. Dynamic capabilities thus reflect a firm’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions”
(Eisenhardt et al. 2000) “The firm’s processes that use resources – especially the processes to integrate, reconfigure, gain and release resources – to match and even create market change.”
(Zott 2003) Dynamic capabilities are likely embedded in organizational knowledge processes and then are directed toward organizational change and evolution, and also enable organization to reconfigure its resource base and adapt to changing market conditions in order to achieve a competitive advantage
Position
(Teece et al. 1997) The current specific endowments of technology, intellectual property, complementary assets. Customer base, and its external relationship with suppliers and complementary
Process
(Miller et al. 1996) Sustainable competitive advantages are created from the way activities fit and reinforce one another
(Teece et al. 1997) The way things are done in the firm, or what might be referred to as its routines, or patterns of current practice and learning Path
(Whittington et al.
1999).
The uniqueness of such a configuration rests not only on which activities a company performs and how it configures each of them, but also on how such activities relate to one another
(Teece et al. 1997) Strategic alternatives available to the firm, and the presence or absence of increasing returns and attendant path dependencies
(Siggelkow 2001) Configuration is the result of a set of interdependent managerial choices concerning human, technical and financial resource allocation, investment and policies in key business processes such as production, marketing, purchasing, new product development, and human resource management (Teece 2007). Integrating external and internal knowledge is crucial of dynamic capabilities for sustainable competitive advantage
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