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Dynamic Capabilities and Strategic Management



How does dynamic capability shape company growth in change ?

How does dynamic capability shape company growth in change? -Case in Japanese social networking game companies -

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How does dynamic capability shape company growth in change ?

  1. 1.                 APDSI-ICOSCM-ISOMS 2014 How does dynamic capability shape company growth in change? -Case in Japanese social networking game companies - 2014/7/19 Akimasa TANAKA @Graduate School of International Social Sciences Yokohama National University Ryo SATO @Department of Business Administration Yokohama National University Keywords: Dynamic Capability, Social Networking Game, Strategic Management
  2. 2. ¥138     ¥282     ¥307     ¥547     ¥0     ¥100     ¥200     ¥300     ¥400     ¥500     ¥600     2010   2011   2012   2013   Social networking game industry has been growing in Japan. Following figure shows how fast it grew. Overview-What is social networking game 2 SOURCE : SOURCE : Unit: Billion Yen Total sales figure of social networking game In this industry,GREE,Inc.(hereunder,GREE) providing social network infrastructure (hereunder,SNI) is one of leaders.
  3. 3. 35.2     64.2     158.2     152.2     10.3     13.3     12.6     12.2     0     50     100     150     200     2010   2011   2012   2013   To know how large GREE grew, here we compared mixi,Inc. (hereunder,mixi). Because mixi is pioneer of SNS in Japan. (※)DeNA is also leader. But they are more diversified than GREE and mixi (A.Tanaka 2013). So,we selected companies focusing on social network service as core business for research reason. 3 Billion Yen 174   592     1,730     2,364     351   472     477     364     0     500     1,000     1,500     2,000     2,500     2010   2011   2012   2013   Sales # of employee 48.5%   52.3%   31.9%  25.5%   16.5%   20.4%   4.0%  0.0%   10.0%   20.0%   30.0%   40.0%   50.0%   60.0%   2010   2011   2012   2013   Sale profit rate Overview-GREE growth
  4. 4. 7.1     8.1     13.1     11.8     8.5     8.0     4.7     1.5     0     5     10     15     2010   2011   2012   2013   4 Sales of social service Sales of item Sale of Ad As we see,all SNI has not achieved growth like GREE.This means that just being in this industry does not promise growth. So,we assume GREE did something for growth. 35.2     64.2     158.2     152.2     9.7     12.3     11.6     9.7     0     20     40     60     80     100     120     140     160     180     2010   2011   2012   2013   28.2   56.1   145.1   140.5   1.2   4.4   6.9   8.2   0   50   100   150   200   2010   2011   2012   2013   Billion Yen Billion Yen Billion Yen Overview-GREE growth
  5. 5. 5 GREE drastically expanded their business in SNI industry. However, 【1】 The change of this industry is rapid and difficult to analyze what is coming next. So How did GREE do that ? To explain 【1】, first we see existing strategic theories. Overview-GREE growth
  6. 6. 6 1. Industry forces A positioning theory by Porter (1985) proposed that company profitability is decided with industry. And he also proposed the power balance between company and competitors,suppliers,buyers and threat from substitutes and new comers (called 5 forces) decided current and future profitability. So,companies need to find charming industry, then enter there,then make strategy of cost leadership or differentiation or niche to sustain advantage. When to use of this theory If industry can be analyzed or predicted,industry forces is useful. But for constantly changing industry like IT service, it is difficult to define the players in industry. Strategic theories
  7. 7. 7 2. Resource based theory The resource based theory by Barney(2002) proposed even companies in same industry was different.Because some resources have immobility and heterogeneity. Additionally, if the resource has value and rarity and imperfectly imitable and non-substitutes (called VRIN),it leads sustained competitive advantage. When  to  use  of  this  theory     This is focused on current resource set company has. So this is hard to guarantee future success. Because the current resource might cause program durability bias,due to overconfidence to the resource. So,this is difficult to use for constantly changing industry or situation. Strategic theories
  8. 8. 8 Strategic theories 3. Dynamic capability Dynamic capability (hereunder,DC) was proposed by Teece and others in 1997. DC focused on how company coped with change. To do this,Teece proposes company has to sense opportunities and threats in environment. And seize/re- configure resources for it. And importantly, DC is consisted of organizational process made with company’s past/resource position. When to use of this theory DC has possibility to explain how company can grow under change. However, according to Teece (2009), the micro foundation of DC is still under development. It means that using DC to practice has still problems.
  9. 9. 9 Comparison of strategic theories Industry forces Resource based theory Emergent strategy(※) Dynamic capability For change No No Yes Yes Focus Industry Resource Pattern Organization al capabilities Tool to use 5 forces VRIN n/a In Progress From a review of strategic theories we saw, which can explain company like GREE the most ? DC seems suitable to explain growth under constantly changing industry like SNI. However,DC is still difficult to use in practice. (※)  We  also  inves;gated  emergent  strategy  (Mintzberg  (1988),  But  this  theory    explained   why  ini;al  planning  or  strategy  had  changed  during  prac;ce.  So  we  assumed  this  theory  was   not  suitable  with  explaining  how  company  was  able  to  cope  with  change  inten;onally  .      
  10. 10. Why is DC difficult? 10 Change BLACK  BOX Performance DC talks this area Reason is that DC is trying to open following black box area. This area contains following perspectives. •  Planning - Emergence •  Capability - Meta capability •  Strategy - Operation DC seems to come from several levels such as above. So,to define what DC should be was difficult issue.
  11. 11. DC micro foundation 11 Change Performa nce Micro foundation Sensing Seizing Reconfigu ration Teece refined the black box like below. His DC is consisted of Ø Sensing/Seizing/Reconfiguration of resource as top management skill And these are constrained of Ø Path/Position/Process Process Path Position Constraints DC as Top management skill
  12. 12. 12 Our try and goal However,the micro foundation of DC has not verified well in practice such as IT industry. Also,according to Teece,the micro foundation is still under development. So if DC is still under development and difficult to use, why don’t we just try to verify and refine it ? A (long) goal of our study is 1.  Refining DC theory 2.  Implement DC to practice like SNI 3.  Find and fill gap between theory and practice 4.  Develop DC more First, we investigate how path/position/process of DC are related with company’s performance under change. This time we try to implement this to SNI industry.
  13. 13. 13 1.  To do our research, we compared GREE and mixi to know how their path/position/process affected performance. 1.1. The reason to compare is in early 2011,the scale of GREE made a big difference with mixi(Page3-4). Research method 2.  So we investigated their path/position/process of prior to 2011 to know how they had differed in 2011. 2.1. This time,we selected their history and service as path/ position. 2.2. This time,we selected their organization diagram and # of top management as some aspects of organizational process.
  14. 14. Path SNS +Platform 2004 GREE:hPp://   Mixi:hPp://   GREE Job Match 1997 Internet service 2001 SNS 2006 Social Game 2011 mixi Social Game 2007 Game Platform 2010 US Market 2011 mixi started job match service on internet. With internet boom, they expanded internet services and SNS later,but not game. We assume job match service was bias to do game business. GREE had only SNS service at start. As above shown,they had no other services in the past. So,they were able to select game soon after when the market was hot. Moreover,game was good complementary with SNS’s technology and also business model they had. US market 2012 SNS Platform 2010 GREE’s root is SNS, mixi is job match. 14
  15. 15. Position 〜2009 2010 GREE mixi GREE SNS Game Game Game Platform On the other hand,GREE had only SNS service which became good complement for game. No wonder they started game soon. mixi SNS Job Match SNS Platform Weak complement (As business model) Strong complement (As business model) GREE complemented existing service,but mix did not. Their Job match service was weak complement for SNS business model. And also game business was different.That’s why they were not able to start game business soon. 15 SNS Platform
  16. 16. mixi 16 Year # of Service Operation officers(Age)(※) # of employee(B) Rate(A/B) 09 3 •  SNS •  Job Matching •  SNS Platform 3 •  CEO •  Vice President as mixi business of general manager •  Management General Manager 304 1.1% 10 262 0.9% Process( # of top management) GREE Year # of Service Operation officers(Age)(※※) # of employee(B) Rate(A/B) 09 3 •  SNS •  Social Game •  Game Platform 4 •  CEO Vice President as Media General Manager •  CTO as Platform General Manager •  CFO as Business development General Manager 102 3.9% 10 174 2.3% # of employees of GREE is less than mixi. But # of operation officers of GREE is more than mixi.
  17. 17. 17 GREE:  hPp://v3.eir-­‐   mixi:hPp://navigator.eir-­‐   CEO Internal     Audit Platform div Media div Media planning div Marketing div Business promotion div Business develop div Human development div Corporate div CEO Internal Audit Internet media div Internet ad div Corporate div Other div Compared with mixi,GREE is more decentralized and more operation officers. According to Teece (2008), decentralization can capture market demand/internal R&D opportunities more than centralization organization. As followed Teece,GREE organization might be able to seize opportunities faster than mixi. mixi GREE Process(Organization diagram in 2010)
  18. 18. What we found from path/position/process Internet service Communication on web Game on smartphone Job match SNS Job match+ the business SNS+ the business Game+ the Business SNS platform +the business SNS as platform Game platform Game mixi had path/position as job match.So,due to difference of business model with game,they were not able to cope with it soon. And their centralization of organization also might have caused negatively for new market. Game platform for global 18 Bias Late (Due to bias) mixi Capability Strategy Market
  19. 19. Communication on web Game on smartphone SNS as platform SNS +platform+ the business Game+ the business Game Globally On the other hand,GREE had path/position as SNS and game before 2010. Much easier than mixi to expand game globally in 2011. And the decentralization of organization also might have helped it. Game platform Game platform for global Game platform + the business Game as platform What we found from path/position/process 19 Good Complement Good Complement GREE Capability Strategy Market
  20. 20. 20 DC was said to difficult to explain the company performance (Ambrosini & Bowman 2009).But we could verify DC with SNS. 1.  Company’s path/position/process are strongly related with how company copes with change and future growth. With this research,we made small step DC could explain IT industry in Japan. 1. As theory 2. As practice Besides theory adaptation we tried,we could find following also. 1.  Decentralization might make a sensing capability more flexible than centralization. Ø Decentralization may be able to avoid old process caused by bias from past experience more than centralization. Ø Additionally,to sense opportunity with decentralization, assignment balance of top management in organization is also related. Conclusion
  21. 21. 21 1.  GREE and mixi was analyzed with only their public data. We admit especially their process needs to be investigated more. 1.  We will investigate path/position/process more to know how these are related with sensing capability. 2.  We will undertake seizing/reconfiguration after 1. Then try to understand entire DC micro foundation for practice. Issue of this research Next research
  22. 22. 22 References 1.  Ambrosini, Véronique; Bowman, Cliff (2009), “What are dynamic capabilities and are they a useful construct in strategic management”, International Journal of Management Reviews, Vol. 11 Issue 1. 2.  Barney,J.B.(2002) Gaining and Sustaining Competitive Advantage,Second Edition,Pearson Education. 3.  Helfat,C.E., Finkelstein,S., Mitchell,W., Peteraf,M.A., Singh,H., Teece,D.J.and Winter,S.G.(2007)Dynamic Capabilities: Understanding Strategic Change in Organizations, Blackwell Publishing. 4.  GREE,Inc.WEBSITE ( 5.  Mintzberg, Henry(1988) Crafting strategy , McKinsey Quarterly. Summer88, Issue 3, p71-90. 6.  mixi,Inc.WEBSITE ( 7.  Numagami Tsuyoshi and Hitotsubashi MBA Senryaku Workshop (2012) Strategic Analysis Vol.2,Casebook Chapter 3, Toyo Keizai Shiposha.(in Japanese) 8.  Porter,Michael E.(1985) Competitive Advantage, Free Press. 9.  Teece,D.J.(2009) Dynamic Capabilities and Strategic Management: Organization and Growth ,OxfordUniversity Press. 10.  Teece,D.J.,Pisano,G.and Shuen,A.(1997) "Dynamic Capabilities and Strategic Management,”Strategic Management Journal, Vol.18,No.7,pp509-533
  • WeiLi151

    Jan. 6, 2017

@ APDSI-ICOSCM-ISOMS 2014 How does dynamic capability shape company growth in change? -Case in Japanese social networking game companies -


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