Dynamic capabilities theoretical background

The resource-based view of the firm was criticised for ignoring the processes related to

resources and instead assumed that they did exist. Considerations such as how resources were

developed, how they were integrated in the firm and how they were released were under-

explored in the literature (Teece et al, 1997). Dynamic capabilities perspectives attempted to

bridge these gaps. By adopting a process as a buffer between firm resources and the changing

business environment, dynamic capabilities help a firm to adjust its resource mix and thereby

maintain the sustainability of the firm's competitive advantage, which otherwise might be

quickly eroded.

The central focus of dynamic capabilities is thus on the degree of “fit” over time between an organisation’s changing external environment and its changing portfolio of resources and capabilities (Porter, 1996). Extending Teece’s (1997) research, Bowman & Ambrosini (2003) argued for four main processes in dynamic capabilities perspectives: reconfiguration,

leveraging, learning and integration (Bowman & Ambrosini, 2003). Reconfiguration was

described as the transformation of resources, while leveraging was the transfer related process

of methods and experience from one part of the firm to another. Learning, which was itself

defined as a dynamic capability, would be the tool for developing measurements of good and

poor results. Integration was described as the process converting external new knowledge to

internal knowledge. Collaborations and partnerships can be a source for new organisational

learning. Similar to learning, building strategic assets is another dynamic capability.

Moreover, these new strategic assets, like knowledge and technology, have to be integrated

within the firm (Teece et al, 1997; Eisenhardt & Martin, 2000).

The dynamic dimension of this concept is thus closely related to strategic processes. In order

to meet the challenges arising, there is a need for an organisation to learn quickly and to build

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Furthermore, Teece et al (1997) pointed out that the degree of effective and efficient internal

coordination or integration of strategic assets may also determine a firm's performance.

Performance is related to specific organisational routines for gathering and processing

information, and competitive advantage requires the integration of external stakeholders. Fast

changing markets demand the ability to reconfigure the firm's asset structure, and to

accomplish the necessary internal and external transformation (Amit & Schoemaker, 1993).

Change is costly, and firms should develop processes to minimise low pay-off change (Teece

et al, 1997, p.521). The capability of changing depends on the ability to evaluate markets and

to quickly accomplish transformation ahead of the competition (Teece et al, 1997; Eisenhardt

& Martin, 2000).

An investigation of different levels of dynamic capabilities and further a capability hierarchy

was suggested. While Collis (1994) was the first one to propose different levels of dynamic

capabilities, Collis (1994) and Winter (2003) distinguished between the modification of the

resource base and the creation and extension of the resource base. Winter (2003) further

developed the idea of a capability hierarchy. His hierarchy begins with operating capabilities or ‘zero-level’ capabilities which allow firms to earn a living in the present (in other words, these are the resource base). He then described first-order capabilities that allow for a change

in zero-order capabilities to occur, for example they effect changes to the production process.

Finally he considered higher order capabilities being the outcome of organisational learning which further results in creating or modifying a firm’s dynamic capabilities. Zahra, Sapienza and Davidsson (2006, p.947) argued that an "infinite spiral of capabilities to renew

capabilities could be conceived". They further commented that these capabilities would have

the ability to change the way the firm solves its problems being "a higher-order dynamic

capability to alter capabilities" (Zahra et al, 2006, p.921). Further, their article focused on

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capabilities founded in the firm without any time or incitement for renewal will not

necessarily give any improvements in a given situation and might even be a part of the reason

for new problems in the organisation (Argote, 1999; Zahra et al, 2006).

The deployment of regenerative dynamic capabilities will also depend on how often managers

perceive the need for this order of change, and this perception may be based either on external

environmental characteristics, such as competitive rivalry, product lifecycles etc., or on

personal characteristics, such as dissatisfaction with the current level of performance, or a

cognitive frame towards risk taking. This reinforces Teece et al (1997), framework of processes, position and paths, and Antonacopoulou’s (2006) argument that there is a constant connection between micro and macro contexts.

The arguments by Zahra et al (2006) about a higher-order dynamic capability for developing

the regenerative dynamic capabilities is related to a learning process of a firm from internal

and external sources. Ambrosini et al. (2009) further proposed in their definition of the higher

order concept that a need for further creation, extension and modification of the firm’s

resource, is in the nature of the dynamic capability concept. These definitions and suggestions

move the attention towards the theory of knowledge sources and use of knowledge and skills

in firms.

The concept of "absorptive capacity" is directly linked to learning processes (Lane et al, 2006)

and is defined as one of several dynamic capabilities (Zahra & George, 2002). The absorptive

capacity concept thus represents a link between the learning theory and dynamic processes in

firms, related to the development of knowledge resources and skills on an individual level as

well as a group and an organisational level (Cohen & Levinthal, 1989; Todorova & Durisin,

2007; Zahra & George, 2002). A detailed review of this concept will be presented in the

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