Dynamic capability theory

According to dynamic capability theory, organisational capabilities can be classified into two categories: operational and dynamic capabilities. Operational capabilities represent the ongoing deployment of existing routines to perform a specific task (Zollo & Winter, 2002; Cepeda & Vera, 2007; Helfat & Winter, 2011). Dynamic capabilities represent the refinement of existing routines or generation of new routines in response to changes in the operating environment (Teece et al., 1997; Cepeda & Vera, 2007; Ambrosini, Bowman, & Collier, 2009; Dixon, Meyer, & Day, 2010; Helfat & Winter, 2011). Specifically, operational capabilities are those that enable a firm to make a living in the present, while dynamic capabilities involve learning activities that enable a firm to alter how it currently makes its living (Winter, 2000; Rosenkopf & Nerkar, 2001; Vermeulen & Barkema, 2001; Vassolo, Anand, & Folta, 2004; Helfat & Winter, 2011).

According to Eisenhardt and Martin (2000) and Teece ( 2007), dynamic capabilities are necessary when firms in a turbulent, fast-moving environments may face rigidity and inefficiency in their existing routines in their efforts to respond to environmental changes. In particular, the mere deployment of existing routines may not be enough in highly turbulent markets, “where the strategic challenge is maintaining competitive advantage when the duration of that advantage is inherently unpredictable and time is an essential aspect of strategy” (Eisenhardt & Martin, 2000, p. 1106). In this sense, dynamic capabilities are the means by which firms make new routine configurations as markets emerge, collide, split, evolve, and die (Eisenhardt & Martin, 2000; Luo, 2002; Helfat & Peteraf, 2003; Cepeda & Vera, 2007; Ambrosini et al., 2009; McKelvie & Davidsson, 2009). Therefore, operational

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capabilities pertain to reusing existing knowledge to perform a specific task, whereas dynamic capabilities relate to learning new knowledge to refine existing routines or generate new routines (Helfat & Peteraf, 2003; Helfat & Winter, 2011). This view of operational and dynamic capabilities appears to be consistent with defining exploratory and exploitative capabilities as “the presence or the absence of learning”, where dynamic capabilities represent the presence of learning and operational capabilities reflect the absence of learning.

On the other hand, conceptualising dynamic capabilities as the refinement of existing routines or generation of new routines implies that they can be decomposed into two types: incremental dynamic capabilities and renewing dynamic capabilities (Ambrosini et al., 2009). Where incremental dynamic capabilities focus on the modification of existing routines, renewing dynamic capabilities pertain to the generation of new routines (Ambrosini et al., 2009). This view of dynamic capabilities appears to be consistent with defining exploratory and exploitative capabilities as “different types of learning”, where dynamic capabilities represent the exploratory form of learning and operational capabilities reflect the exploitative form of learning. Therefore, there is a lack of clarity in dynamic capability theory about whether operational and dynamic capabilities are “different forms of organisational learning” or the “presence or absence of learning”.

Recent advances in dynamic capability theory suggest that while dynamic and operational capabilities differ in their purposes and intended outcomes, it is impossible to distinguish them for several reasons (Zollo & Winter, 2002; Schreyögg & Kliesch-Eberl, 2007; Teece, 2007; Helfat & Winter, 2011). First, dynamic capabilities are often subject to significant causal ambiguity with respect to their performance implication (Zollo & Winter, 2002). “Dynamic capabilities do not directly affect output for the firm in which they reside, but indirectly contribute to the output of the firm through an impact on operational capabilities” (Helfat & Peteraf, 2003, p. 999). In this sense, dynamic and operational

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capabilities should occur simultaneously to affect a firm’s (or a business unit) performance. Second, operational capabilities contain a minimum level of learning, as even individuals within a business unit by doing nothing more than replicating the existing routines accumulate experience and knowledge (Gupta et al., 2006). Third, some capabilities can be used for both operational and dynamic purposes (Luo, 2002; Helfat & Winter, 2011).

In this sense, a capability can be (or possess a) dual-purpose (i.e., both operational and dynamic purposes), as a group of individuals (i.e., managers and employees within a firm or a business unit) may encompass different knowledge, skills, and experiences to diagnose environmental changes and search for potential solutions to respond to environmental changes. Zollo and Winter (2002, pp. 341-342) assert that “by sharing their individual experiences and comparing their opinions with those of their colleagues, organisation members can achieve an improved level of clarity between the actions required to execute a certain task and the performance outcomes produced”. In effect, interactions among individuals provide the capacity to refine existing routines and/or to generate new routines to perform a specific task or respond to environmental changes (Zollo & Winter, 2002). Therefore, a capability can be dual-purpose, when it encompasses both learning and non- learning routines (Schreyögg & Kliesch-Eberl, 2007; Helfat & Winter, 2011). In other words, a capability can be characterised as operational and dynamic simultaneously, when it provides the capacity to perform a specific task through refinement of existing routines or generation of new routines (Schreyögg & Kliesch-Eberl, 2007). This position is consistent with research arguing that an operational capability can be dynamic, and it can be clearly seen in the work of Vorhies (1998), Luo (2002), Schreyögg and Kliesch-Eberl (2007), Morgan et al. (2009), and Helfat and Winter (2011).

In conclusion, this section reviewed the theoretical perspectives regarding the conceptualisation of the exploratory and exploitative capabilities using the organisational

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ambidexterity and dynamic capability perspectives, respectively. These theoretical perspectives provide the foundation to conceptualise exploratory and exploitative capabilities in Chapter Three. The following section presents a review of the literature on the operationalisation of organisational ambidexterity.