Academics have proposed several capabilities as either dynamic capabilities in themselves or as manifestations of dynamic capabilities. For example, some of the examples of dynamic capabilities are: “process R&D”, restructuring, re-engineering and post-acquisition integration (Zollo & Winter, 2002), alliance management, product development, strategic decision making (Eisenhardt & Martin, 2000), and the reconfiguration of resources (Pavlou & Sawy, 2006). They are considered dynamic capabilities because these processes require resource integration such as in product development routines, or resource reconfiguration such as in resource transfer, replication and allocation, and or resource gain and release such as in knowledge
extensively researched and have been shown to affect firms’ abilities to obtain and sustain competitive advantage. Although the listed capabilities are not exhaustive, they help a firm renew itself, endure, and prevail over external turbulences; thus, they are the essence of dynamic capabilities and its means for achieving and sustaining competitive advantage. It is ultimately the ability to reconfigure the resources controlled and/or accessed by the firm to meet new conditions, the ability to create new resources and capabilities and the ability to create strategic flexibility that prevent internal atrophy and chaos.
And by definition, dynamic capabilities can clearly benefit from SDNM practices, which allow and enable a total system visibility and integrates supply and demand management on a process and operations level within and across companies to give the firm the ability to identify the unique resource combinations and the ability to combine, configure and deploy these value enhancing combinations. The SDNM practices involve a great deal of tacit elements and can be very complex. In fact,
complex integration processes of complementary and congruent competencies, inside the firm and across firms comprising the demand network on a process, functional and interfrim level, required to develop these dynamic capabilities can create causal
ambiguity which in turn can enable the firm to sustain its competitive advantage (Marcus & Anderson, 2006).
Effective and successful change depends on taking into account the effects of the change on every value network process and every member of the interdependent
likely span across the demand network members. SDNM practices give the firm this holistic view and the capability to manage the interdependent relationships, and they also can help bring all chain members along when it is time to reconfigure, redeploy and change. Thus, an appropriate research path would be to consider the relationships between SDNM practices and dynamic capabilities. Dynamic capabilities both affect and are affected by operating competencies and strategies (Pavlou & Sawy, 2006). And, SDNM as a business strategy and tactical competency falls in between higher level dynamic capabilities and lower level operational competencies; hence, it can both affect and be affected by dynamic capabilities.
For the purposes of this work, I will adopt the definition of dynamic capabilities as the “ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997: 516). Although many definitions for dynamic capabilities have been proposed since seminal work of Teece and his colleagues in 1997, I believe that the subsequent definitions are, to a great extent, reiterations of the original definition as the Zahra et al. (2006) definition quoted above shows. For example, Wang & Ahmed (2007) define dynamic capabilities as “a firm’s behavioral orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities and, most importantly, upgrade and reconstruct its core capabilities in response to the changing environments to attain and sustain competitive advantage” (Wang & Ahmed, 2007: 35) is clearly an extension and a reiteration of the definition adopted for this work. Moreover, the adopted definition avoids any direct relation to competitive advantage which is, as discussed previously, debatable. The
adopted definition is the original and most simple definition that encompasses all the listed examples of dynamic capabilities above. Whether it is product development, or alliance management, or re-engineering process, they all require the integration of, the building of, and the reconfiguration of internal and external competences, as the chosen definition explicitly states.
In order to integrate the SDNM and dynamic capabilities research, a set of the dynamic capabilities’ processes must be chosen first. Teece et al. (1997) proposed coordination, integration, learning, reconfiguration and transformation as organizational processes that determine a firm’s distinctive dynamic capabilities along with its resource position and its capability development path. Eisenhardt and Martin (2000) identify product development routines, strategic decision making, replication routines, resource allocation processes, coevolving, patching, knowledge creation routines, alliance routines, acquisition routines, and exit routines as dynamic capability routines and/or applications of dynamic capabilities that have been subject to extensive empirical research in their own right. However, these latter routines and processes still require integration, reconfiguration, gain and release of resources before they can be deployed according to Eisenhardt and Martin (2000).
Pavlou and Sawy (2006) on the other hand propose the reconfiguration of resources as the goal process of dynamic capabilities and the sensing of the market environment for needs and opportunities, the process of learning what has been sensed to build and enhance appropriate competencies, the coordination of activities, and the integration of patterns of interactions as the reconfiguration enabling processes.
Moreover, Teece (2007) disaggregates dynamic capabilities into “the capacity to 1) sense and shape opportunities and threats, 2) seize opportunities, and 3) maintain competitiveness through enhancing, combining, protecting, and when necessary, reconfiguring the business enterprise’s intangible and tangible assets” (Teece, 2007: 1319). Therefore, both works propose breaking down the processes that make up dynamic capabilities into goal process and enabling processes, i.e. complementary processes, that when combined together, lead to dynamic capabilities.
Although Teece et al. (1997) propose that dynamic capabilities are unique and firm specific, Eisenhardt and Martin (2000) note that dynamic capabilities, though idiosyncratic in their details, have common features across firms, which could lead to substitutability and equifinality of the dynamic capabilities. Wang and Ahmed (2007) build on this notion of common features to propose adaptive capability, absorptive capability (Cohen & Levinthal, 1990), and innovative capability as common factors that reflect the sensing, seizing, and taking actions to maintain competitive advantage by reconfiguring existing or creating new resources. Adaptive capability indicates the firm’s ability to sense market opportunities, and absorptive capability is defined as “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends … the ability to evaluate and utilize outside knowledge is largely a function of the level of prior knowledge” (Cohen & Levinthal, 1990: 128), and it positively affects a firm’s ability to learn new knowledge, integrate it, transform and deploy it. And last, innovative capability indicates a firm’s ability to develop new
products and/or new processes and organizational forms, and identify new markets and/or new sources of supply (Wang & Ahmed, 2007).
It can be noted that the abilities to sense and seize market changes and
opportunities, the ability to learn, the ability to coordinate and integrate, and the ability to reconfigure are common among all above conceptualizations of dynamic capabilities. Reconfiguring capability is the ability to build, combine and reconfigure resources and operational competencies in response to the identified market changes and opportunities in order to gain and sustain competitive advantage. The key processes and capabilities that underlie dynamic capabilities as identified by Teece et al. (1997) and others are: sensing and learning capability, the coordination/integration capability, and the
reconfiguration capability (the goal or ultimate process) (Harreld, O Reilly, & Tushman, 2007; Pavlou & Sawy, 2006; Teece, 2007; Teece et al., 1997). These processes enable the identification of new market opportunities and enable the use of efficient and effective processes to seize these opportunities by configuring or reconfiguring the firm’s resources and capabilities to match the new conditions and thus “explain the essence of the firm’s dynamic capabilities and its competitive advantage” (Teece et al., 1997:518). The three organizational processes that together constitute a firm’s unique dynamic capabilities are:
1) The sensing and learning capabilities. Sensing capability can be defined as the firm’s ability to sense market changes, resource gaps and market opportunities better than rivals. The sensing capability requires the firm to build market intelligence,
value chain (Kogut & Zander, 1996) and be able to respond to market intelligence (Amit & Schoemaker, 1993). The learning capability is defined as the “the ability to acquire, assimilate, transform, and exploit knowledge to generate new knowledge” (Pavlou & Sawy, 2006: 7). The reason I have combined sensing and learning capabilities together in this work is because often they have to exist together for either to be effective. Unless there is sensing ability, there can’t be a learning process and unless there is a learning process, sensing ability is will not be exploited effectively. Without learning and knowledge building, a firm will be unable to discern the environment effectively, i.e. sensing capability.
Experience accumulation, knowledge articulation and knowledge codification are learning mechanisms that enable the learning process and lead to reconfiguration
capability and eventually dynamic capabilities (Zollo & Winter, 1999; Zollo & Winter, 2002). Moreover, a firm’s knowledge evolves through a learning cycle which first starts by an external stimulus that is picked up by a firm’s scanning activities and then the firm combines its experience and knowledge with these external stimuli, which could be technological changes, market changes, and/or competitor actions. The second stage of the cycle involves selecting the combinations that have the potential for increasing internal competencies or creating new ones. In the third stage, the firm diffuses the new combinations by sharing the new knowledge with the relevant parties in order to
leverage this new knowledge. In the last stage, the firm enacts the new capabilities to create new routines that when taken with other routines and capabilities can create new competencies (Zollo & Winter, 2002). These new competencies in turn add to the
knowledge base and experience accumulation, which the firm then combines with the next stimulus. Note that routines are defined as “stable patterns of behavior that characterize organizational reactions to variegated, internal or external, stimuli” (Zollo & Winter, 2002: 340).
Dynamic capabilities are also used to gain and release resources through
knowledge creation routines, and alliance routines which are also dependent on the firms ability to identify and learn new capabilities from external routines (Eisenhardt &
Martin, 2000). Acquisition routines and exit routines also require sensing abilities to identify potential synergistic combination of complementary resources and capabilities for acquisition or to identify incompatible and/or decaying resources for timely exit decisions.
The sensing of change in the market, whether technological, demand related, and or rival-related is thus a critical part of the dynamic capabilities’ development process. On a more basic level, the sensing capability is also important for the resource-picking concept emphasized by the RBV. Thus, sensing is not only important for dynamic capabilities but also necessary for identifying synergistic combinations of resources and capabilities available within the firm, across the demand network or in the strategic factor market in all times. Therefore, sensing capability clearly has an impact on SDNM and is impacted by SDNM as I explain in the next section.
2) The coordination and integration capabilities. They are also identified by Teece et al. (1997) as organizational processes required for strategic advantage and for dynamic capabilities. And in thin markets, characterized by transactional complexity
and contractual hazard, firms turn to internal allocation of resources in the form of vertical integration and or allocate resources across the demand network through long term strategic relationships in order to avoid arm’s-length market exchange (Coase, 1937; Williamson, 1975, 1985). This internal allocation, due to co-specialized and idiosyncratic assets, requires the management to coordinate and orchestrate the assets in order to assemble unique configurations of the assets that can lead to value
enhancement. Above that, firms differ in how they conduct and coordinate activities internally and externally, thus suggesting that coordination capabilities and routines are firm specific. Moreover, empirical research has shown that these differences have significant impact on the quality of the end products, the costs and the lead times of product development projects (Clark & Fujimoto, 1991; Rothaermel et al., 2006).
Coordination and integration capabilities are conjoined and are important
processes during both stable and change periods as they are the means by which the firm manages the congruencies and complementarities between interdependent resources and processes. Via the integration of information and knowledge of individual activities, firms coordinate to execute collective activities (Grant, 1996a) because by coordinating the different interdependent activities, firms can allocate resources, assign tasks and synchronize these activities in the most efficient and effective way (Pavlou & Sawy, 2006). Iansiti and Clarck (1994) found, in their study of the automobile and computer industries that the integration of knowledge was a critical driver of dynamic capabilities and hence better performance from the perspectives of product quality, productivity, and lead time.
In addition, the resource integration process is clearly visible in new product development routines (NPD) where firms combine and integrate resources, capabilities and competences from different functional units, internally and externally in developing new products. Another application of resource integration is the process of strategic decision making. When making a strategic decision, a firm has to integrate its
accumulated individual and corporate experiences, and integrate inputs from all affected and concerned units. Therefore, integrating knowledge from all processes and entities can greatly benefit the operational capability.
Although decentralization becomes critical as firms expand in order to maintain flexibility and responsiveness, it can compromise the ability to integrate. Hence, in dynamic environments, firms must balance decentralization and integration of
knowledge in order to enable the coordination of activities that must be carried out in a coherent manner. Coordination capability is also required in NPD processes, strategic decision making, alliance routines, acquisition routines and exit routines. Coordination, defined as “the process of integrating identified capabilities into effective yet efficient capability configuration” (Sirmon et al., 2007: 277) is a critical sub-process of resource management processes’ leveraging capability. Mobilizing, coordination and deploying abilities together make up the leveraging capability; which “refers to the application of a firm’s capabilities to create value for customers and wealth for owners” (Sirmon et al., 2007: 277). Thus, the coordination capability is critical for resource management and has clear implications for both dynamic capabilities and SDNM perspectives.
3) The reconfiguration capability/process of dynamic capabilities. It is, according to Pavlou and Sawy (2006) and Teece et al. (1997), the goal process of dynamic capabilities. Moreover, it reflects the capacity “to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets” (Teece, 2007:1319). The
reconfiguration process is defined as the “the process of deploying existing resources into new configurations of operational competencies that better match the environment” (Pavlou & Sawy, 2006: 4) and the reconfiguration capability is defined as “the ability to deploy new configurations of operational competencies that better match the
environment” (Pavlou & Sawy, 2006: 7) and according to Pavlou and Sawy (2006), it is enabled by the sensing, learning, integrating and coordinating capabilities.
The processes of recombining and reconfiguring intangible and tangible resources within the firm and across the demand network are key to sustainable competitive advantage in times of market and technological uncertainty and change (Teece, 2007). Although Eisenhardt and Martin (2000) suggest multiple paths to the such dynamic capabilities, the potential for sustained competitive advantage lies in using these capabilities faster, sooner, more astutely, more effectively, and/or more
fortuitously than rivals to create synergistic resource combinations that engender continuous series of short-term competitive advantages.
For the reconfiguration capability to be effective, it has to be appropriate, and performed in a timely and efficient manner (Galunic & Rodan, 1998; Kogut & Zander, 1996; Pavlou & Sawy, 2006; Zott, 2003). Reconfiguration capability enables the
transfer and replications of routines and the allocation of resources within the firm and across the demand network. NPD processes also require resource reconfiguration capabilities, to reconfigure product development operational competencies, to achieve competitive advantage along the quality, the innovation, the lead time and the cost dimensions concurrently (Kusunoki et al., 1998). Because the resource reconfiguration capability is the goal process of dynamic capabilities enabled by the sensing and learning capabilities, and the coordinating and integrating capabilities, it will have clear
implications for the SCM capability, implications on which I elaborate later.
In the next section, an effort is made to integrate the SDNM practices with the organizational process that determine a firm or a demand network’s unique dynamic capabilities. SDNM practices and dynamic capabilities’ processes research are integrated with the goal of expanding knowledge in the two areas and the
interrelationship between them. SDNM’s quest for agility, flexibility and alignment play a significant role in the development and deployment of dynamic capabilities. Also, it can support dynamic capabilities’ efforts to identify resources and capabilities for successful redeployment to meet internal and external needs. On the other hand, the quest for dynamic capabilities can guide and frame the SDNM’s pursuit of agility and flexibility, and use the SDNM capability strategically in pursuit of competitive
advantage.