《Crossing the Cycle:
Digital Transformation and Dynamic
Capability》
Author: Tang Xing Tong
Publication Date: March 2023,
Place of Publication: Beijing
ISBN: 9787516924433.

Author:
Tang Xing Tong（Bruce Tang） is a digital transformation consultant and a new
media marketing expert. He specializes in the fields of new media marketing,
community marketing, and digital transformation. He refuses to follow the crowd and
seeks insights that can penetrate through anything.
With nearly 20 years of experience in strategic consulting and training, he has
provided consulting, training, or advisory services to hundreds of leading enterprises,
including China Europe International Business School, Cheung Kong Graduate School
of Business, Tsinghua University, Peking University, Alibaba, Baidu, PetroChina, State
Grid, China Aerospace, China Mobile, China Construction Bank, Ping An, Starbucks,

Mercedes-Benz, HP, Haier, Midea, SF Express, Vanke Real Estate, Sany Heavy Industry,
Mettler-Toledo, and more.
He is also a best-selling author who writes while consulting, teaching, and
researching. His works include "Community Explosion", "Seed User Methodology",
"Crossing the Cycle", "Diffusion of Innovation", "Open Innovation", "Combinatorial
Innovation", "Staggered Growth", and more.
He is also a walking Stoic who observes, thinks, and records digital business with a
peaceful mindset.
Email : along5418@gamil.com
Part 1: Digital Capability and Enterprise Evolution
Chapter 1: How Enterprises Grow in the Era of Great Disruption
The natural evolution in biology and the transformation and revolution in enterprises
share the same logic and principle. When we look at digital transformation from a business
management perspective, the context becomes clear. With digitization, new consumer
culture, and a new international environment, companies, like species adapting to
environmental changes, will either survive by adapting or be eliminated if they cannot. The
key commonality between enterprises and species is their ability to adapt to the
environment.
1.1 What Can You Do Besides Anxiety?

1.2 The Era of Great Disruption and Turbulence
1.3 Biological Thinking and Enterprise Evolution
1.4 Transformation Begins with Changing the Mindset
1.5 Crisis-driven Transformation, Reactive Transformation, and Proactive
Transformation
Chapter 2: Dynamic Capability and Digital Transformation
The core logic of dynamic capability is to be able to perceive changes in the
environment (political, economic, social, technological, cultural, etc.) and understand their
implications, and to create sustained value for customers more effectively to gain a
competitive advantage. Both enterprises and individuals need to refresh their abilities and
build new ability models to achieve the goal of benefiting others. Dynamic capability has
three key processes: 1. Perception of environmental changes; 2. Understanding new game
rules and capturing market opportunities; 3. Dynamically refreshing and changing the
ability.
2.1 Enterprises are essentially a collection of abilities
2.2 The Core Logic of Dynamic Capability and the SST Model
2.3 Trends > Advantages: Saying Goodbye to Old Abilities in a Timely Manner
2.4 Ability Change Rather Than Enterprise Revolution
2.5 Dynamic Capability and Strategic Management
2.6 Dynamic Ability to Traverse the Cycle
Part 2: Three Common Digital Capabilities in the Digital Age
Chapter 3: Data Intelligence
Data intelligence will redefine industry boundaries. When traditional enterprises refresh
their data intelligence capabilities and integrate them into products, it not only enhances
individual competitiveness but also expands industry boundaries. The focus of competition
will shift from independent products to systems that include related products, and finally to
data intelligent systems that connect various subsystems.

3.1 The Warriors' Adventure in Data Intelligence
3.2 Data Intelligence Revolution
3.3 Three Steps to Data Intelligence: Digitization, Onlineization, and Intelligence
3.4 Moving Towards Data-Intelligent Organizations
Chapter 4: Agile - The Power of Agility
The outside world is a world full of uncertainty, where past experiences and common
sense no longer apply. Today, the technological revolution represented by the Internet of
Things, new energy, artificial intelligence, biotechnology, aerospace engineering, and others
is constantly changing the world and dramatically changing human values. In addition to
uncertainty, we can't be certain about anything else. A core pillar of the worldview of the
future is uncertainty.
4.1 The Vision of Agile: Surviving in a Complex and Uncertain Age
4.2 Framework Model of Agility
4.3 Thriving Mid-Platform Development: Building an Agile Organization
4.4 9 Practices to Cultivate Agility
4.5 Winning in the Future: Organizational Resilience and Flexibility
4.5.1 Exploring Business Through Flexible Organizations
4.5.2 Elastic Autonomous Organizations
4.5.3 Dynamically Adjusting Organizations around Customer Needs
4.5.4 Organizational Connectivity and Hackathon
Chapter 5: Connection - The Power of Connection
In the era of digital intelligence, emphasis on the ability to connect is largely due to the
massive penetration and adoption of sensors, AR, and VR. The underlying idea behind
connection power is that the traditional notion of space is compressed, and on this basis,
the logic of business and the rules of competition are reconstructed. In the age of big
industry, time and space, especially space, were limited by various constraints, and all

discussions about business competition and logic were based on specific spatial constraints,
making it difficult to discuss related topics across space.
5.1 The Interpersonal Connection Power Behind Lanzhou Noodles
5.2 Connection Power is the Fundamental Ability of the Digital Intelligence Age
5.2.1 Connection Breadth
5.2.2 Connection Depth
5.2.3 Connection Density
5.2.4 Connection Ability between People
5.2.5 Connection Ability between People and Things
5.2.6 Connection Ability between Things
5.3 Core Capability in the Era of the Internet of Things
5.4 Core Capability in the AR/VR Era
5.4.1 Integration of the Real World and the Digital World
5.4.2 AR/VR Reshapes the Core Capabilities of Enterprises
5.4.3 Deploying New Connection Abilities of AR/VR
Part Three: Five Core Dynamic Capabilities
Chapter 6: Core Capability 1 - Symbol and Meaning Management Capability
In times of scarcity, we tend to focus more on the material level to solve problems. In
the era of big industry, the main theme was to solve material and scarcity issues. With the
digital intelligence era, we enter a relatively abundant era where material goods are no
longer so scarce, and people gradually begin to pursue differentiation. Issues related to the
proportion of symbol and meaning are increasing day by day.
6.1 Second-Half Competition: The Battle of Symbol and Meaning
6.2 Capacity to Inspire Desire
6.2.1 Symbols: Imagined by Groups and Insisted Upon in All Seriousness
6.3 It's Time to Focus on the Power of Product Philosophy and Symbols

6.3.1 Dimension 1 - The Product Itself
6.3.2 Dimension 2 - User Relationships
6.3.3 Dimension 3 - Social Relationships
6.4 Design and Aesthetics Drive New Business
6.4.1 Looks are Everything
6.4.2 Life Itself is a Delicate Work of Art
Chapter 7: Core Competency 2 - Customer Relationship Management Ability
With digital transformation and new technology applications, customer logic has
changed: production has become abundant, and customers have become the core of
enterprise management. The ideal state is efficient 1-to-1 management, although not
achievable, companies are striving towards customer relationship management. For a
considerable period of time, customer-centricity will become the main theme of the
business paradigm, and customer relationship management ability will become a key
capability for enterprise strategy and competition.
7.1 Becoming a Customer-Centric Company
7.2 The Unwilling Truth: Customer Asset Loss
7.3 Customer Relationship Management Process
7.3.1 Identifying Customers
7.3.2 Differentiating Different Customers
7.3.3 Interacting with Customers
7.3.4 Providing Services that Meet Customer Expectations
7.4 Customer Relationship Management Ability is Organizational Behavior
Chapter 8: Core Competency 3 - Content Creation Ability
In the era of big industry, companies outsourced the task of manufacturing content

and focused on industrialized thinking for communication. If companies wanted to
communicate, they thought of advertising and public relations, and used media and other
means to disseminate information-based content. Rarely did companies take the initiative
to sort, edit, and even innovate and create content from the perspective of content power
for society, and actively share it with customers and related upstream and downstream
individuals.
As the era of mass communication comes to an end, we are entering a form of
information flow in a digital, vertical community-based social network.
8.1 Content Power Future Passport
8.1.1 Why is content power raised now? What happened in the past?
8.2 A Required Course for New Business: Video Content Ability
8.3 Developing Content Ability is Urgent
8.3.1 Content is Strategy
8.3.2 Content Power is About Running Various Processes of Content
Chapter 9: Core Competency 4 - Knowledge Management Ability
Companies should be very clear and firmly believe that "the ability to effectively
manage knowledge within and outside the organization will be the most important
competitive point in the future competitive organization." If you cannot effectively handle
knowledge within and outside the organization, and cannot effectively create value for
customers, then such organizations will inevitably disappear in the competitive environment.
9.1 From Time Management to Knowledge Management
9.2 Experts Begin by Distinguishing Types of Knowledge
9.3 Four Categories of Knowledge Management Practices
9.4 Key Five Stages of Knowledge Management
9.4.1 Acquiring Knowledge
9.4.2 Creating Knowledge

9.4.3 Storing Knowledge
9.4.4 Disseminating Knowledge
9.4.5 Applying Knowledge
9.5 Knowledge Sharing Incentives and Obstacles to Overcome
Chapter 10: Core Competency 5 - Motivation and Empowerment Ability
Motivation and empowerment abilities have become critical points in organizational
management processes. Pursuing a sense of purpose is very important, as employees are
not just concerned with financial rewards, but also choose organizations based on their
mission and values, and expect to be involved in organizations that are changing the world.
10.1 Competitiveness Requires Motivation and Empowerment
10.2 Material Incentive Ability Requires Calculation Skills
10.3 Spiritual Incentive Ability Requires Playfulness
10.3.1 OKR: A Tool for Self-Motivation
10.4 Continuous Empowerment Relies on Tools and Systems
Part 4: Continuously Refreshing Skills, Continuously Creating New Growth
Chapter 11: Perception of Environmental Changes
Changes in the environment are unavoidable, and they are objective for all enterprises,
with no distinction between "opportunity" and "threat." The difference lies in subjectivity
and oneself. Ignoring changes and taking slow action towards change will push all changes
towards the opposition of the enterprise, thus appearing in the form of "threat." For
enterprises that always pay attention to the environment and take action, changes appear in
the form of "opportunity."
11.1 Perception of Weak Signals of Change

11.2 Patterns of Perceiving Environmental Changes
11.3 Regional Politics and Risk of Change
11.4 Economic Cycles and Curve Patterns
11.5 Social Culture and Lifestyle
11.6 Assessment of Technological Innovation Maturity and Penetration Rate
11.7 Consumer Subcultures and Dynamic Changes in Demand
11.8 Collection of Competitive Intelligence and Other Information
Chapter 12: Building a Change Leadership Team
The dynamic capability change leadership team is responsible for driving dynamic
capability change and ensuring its ultimate completion. The establishment of a dynamic
capability change leadership team is not just a matter of ceremony; more importantly, such
an institution gives a certain amount of power, responsibility, and obligation to drive
dynamic capability change. In the process of organizational management, if only calling for
a transformation or change without a relevant team structure, it is often difficult to
implement.
12.1 Why Do We Need a Change Leadership Team?
12.2 Horizontal and Vertical Models for Building Teams
12.3 Choosing Suitable Members
12.4 Ensuring Efficient Operation of the Change Leadership Team
Chapter 13: Direction and Implementation Path of New Capabilities
From the perspective of dynamic capability change management, every enterprise,
team, and individual needs to update their core capabilities as the environment changes.
The deliberate evolution direction of all these core capabilities becomes particularly
important.
13.1 Starting from Finding Capability Gaps

13.2 Digital Transformation = Strategy * Digital Capabilities
13.3 Look at the Present from the Future to Find Dynamic Capability Directions
13.3.1 Defining the Industry Anchors the Demand
13.3.2 Defining the Industry Should Not Be Limited to Product Functions
13.3.3 Transformation is the Dynamic Evolution of Core Capabilities
13.4 Value Creation Model Determines Future Capabilities
13.5 Confirmation of Future Core Capability List
13.6 Confirmation of Team's Core Capability List
13.7 5 Paths for Implementing Core Capabilities
13.7.1 Recruiting New Talents
13.7.2 Training and Learning
13.7.3 Third Party
13.7.4 Mergers and Acquisitions
13.7.5 Elimination and Dismissal
Chapter 14: Communicating the Transformation Vision
At this stage, it is necessary to communicate efficiently with all employees the meaning
of dynamic capability change, core capability directions, and core capability training
content. Why emphasize communication instead of conveying? Conveying is more top-
down and does not consider audience feedback, while organizational communication
emphasizes two-way communication, where both sides must interact and exchange
information for it to be called communication. The purpose of communicating the dynamic
capability change topic is to make the organization united and able to recognize,
understand, and collaborate on the upcoming dynamic capability change work. Effective
communication can create a good environment for dynamic capability change and
management.
14.1 Inadequate Communication Can Hinder Transformation
14.2 Communication Achieving Consensus

14.3 Reduce Communication Costs and Focus on the Persuasive Effect
14.4 Saturated Three-dimensional Propagation
14.5 Innovative Application of Digital Communication Methods
14.6 Tell Stories and Share Benchmark Cases
Chapter 15: Clearing Transformation Obstacles
Dynamic capability management has gone through environmental analysis, building a
change leadership team, confirming core capability directions, and communicating the
transformation vision. The next step is to start taking action. Resistance and obstacles will
arise during and after the action. If these obstacles are not removed, they will greatly limit
the number of people involved in the transformation and the final results.
15.1 Change Dynamics and Obstacles
15.2 Strong Inertia Destroys Change Enthusiasm
15.2.1 Individual Level
15.2.2 Organizational Level
15.2.3 Cultural Inertia
15.3 From Not Willing to Do to Eager to Do
15.4 Solving the Problem of Not Being Able to Do
15.5 From Not Being Able to Do to Being Good at It
Chapter 16 Cultivating New Abilities
Cultivating new abilities requires resolving uncertainty and encouraging employees to
move from the level of cognitive consensus to the level of action. In this process, new core
abilities should be made easy to start, provide immediate feedback, and encourage more
people to participate through celebratory rituals. In the shaping of new abilities, the use of
setbacks is beneficial for recovering from failure. Through these efforts, cultivating new core
abilities will eventually become a trend, allowing those who are skeptical of change to feel

the light and heat of change, and to begin actively trying, ultimately achieving greater
victories and leading the enterprise towards the future.
16.1 The pace of cultivating new abilities
16.2 The process of acquiring abilities
16.3 Cultivating personal new abilities
16.4 Easy to start, quick to see results
16.5 Dopamine and the motivation for new abilities
16.6 Creating an atmosphere of full ceremony
16.7 Making good use of setbacks and reflecting on failures
Chapter 17 Integrating New Abilities into Corporate DNA
People's irrational and political resistance to change will never completely disappear.
Even if we achieve a certain degree of success in early dynamic capability changes, we must
actively understand and manage human and organizational nature. We can leave members
who refuse to change on the sidelines, but they will not change or leave. Instead, they will
wait for the opportunity to make a comeback. In the process of dynamic capability
management, resistance cannot be avoided, and problem-solving is a constant task in
moving forward.
17.1 Counterattacking forces waiting for the opportunity
17.2 Identity recognition ensures the sustainability of capability change
17.3 First rigid, then optimized, and then solidified
17.4 Integrating into corporate culture DNA for sustained change.
Author's Preface: Stay Calm and Move Forward with a Firm Gaze!
I am a problem-oriented researcher. For the past 20 years, I have been providing

services to enterprises on innovation and growth, as well as digital transformation. In recent
years, I have felt an invisible cloud looming over us, whether it's the advent of the digital
age or the unpredictable international situation. Anxiety seems to be everywhere in society. I
asked myself a question: besides being anxious, what else can we do? Instead of letting our
fragile minds suffer from various anxieties. After years of exploration, I found the answer,
and this book is about the answer to this question.
I have set three principles for my writing: 1. Don't complain without providing solutions,
write from the perspective of social and enterprise issues; 2. Aim to write something that
can be sold for 50 years, not just 2-3 years; 3. Provide a methodology or framework model
to help readers better understand and improve the world. When choosing the topic for this
new book, I followed these principles, and the writing process has also been approaching
these three principles.
I hope that after reading this book, you can stay calm with a firm gaze. How can you do
that? You need to actively deal with uncertainty and look at the present through the lens of
the future. What core abilities and resources do society and people need in the competitive
environment of the future? We need to strengthen our abilities for the future starting from
today, so that when the future unfolds, you will be the rare calm and composed one in the
crowd, or benefit from the trend dividend.
The value and positioning of this book:
The urgency of the problem, the general anxiety of enterprises and the public, and the
ability to refresh are a path and remedy for alleviating anxiety. Dynamic capability methods
can not only solve the problem of digital transformation but also serve as a universal rule
for enterprises to continuously evolve and win through cycles.
Dynamic capability is a core law that approaches the bottom and the way to help
businesses navigate through the cycle. Just like the editor's evaluation of this book, the topic

is not only of practical guidance but also has the potential to be a bestseller and a timeless
classic. Demand will always exist. The perspective of dynamic capability is particularly
valuable, and although my narrative may not be eloquent enough, it does not affect you
from seeing the world from this perspective. Please believe me.
The problems and values addressed in this book are:
Business is transitioning from the paradigm of the industrial age to the knowledge-
based innovation-oriented digital age. However, the industry is still stuck in conceptual
discussion, without providing a clear path and method for the transition between the old
and new paradigms. This book provides a path and method for enterprise transformation
between the old and new paradigms, to help you explore practical applications.
The core power of digital transformation is the digital capability of the enterprise, but
the industry has not yet provided a clear puzzle and structure of the future core capability.
This book presents a universal DAC capability model and emerging trends of core
capabilities in the era of digital intelligence, to help companies identify gaps and build
sustainable competitive advantages for the future.
This book also provides practical advice on how to change the ability of enterprises. In
general, transformation and change are difficult, but changing the inertia of corporate
capabilities is even more difficult. We must start from multiple perspectives such as
cognition, mentality, psychology, behavior, and incentives to effectively refresh the dynamic
capabilities of the enterprise.
Digital transformation is being carried out vigorously, and it is urgent to migrate from
the traditional core capability paradigm of the industrial age to the new capabilities of the
era of artificial intelligence and blockchain, and to make structured changes. The evolution
of new business species should look to the future, propose new core capabilities, and only
companies possessing the core capabilities required for the future can survive and gain a
sustainable competitive advantage in a broader time dimension.
Reinterpreting dynamic capability or looking at digital transformation from the

perspective of dynamic capability will be a realistic problem that enterprises must face for a
considerable period, which may take 10 to 20 years to complete the paradigm shift of
dynamic capabilities.
I must also declare that dynamic capabilities are not only used to solve digital
transformation problems. It is just that in the writing process, we are in the process of
switching from the industrial society to the digital society, and I use this as a case to
interpret. Dynamic capability is a repetitive and ongoing process. I think in the distant
future, you will still need the methodology of dynamic capabilities.
Writing Process of Dynamic Capability:
During the research process, I found that there are many like-minded peers around the
world, such as Gary Hamel, the author of "The Future of Competition", Tom Peters, the
author of "In Search of Excellence", and domestic entrepreneurs such as Ren Zhengfei, Jack
Ma, and Pony Ma have all emphasized the issue of core capabilities and dynamic
capabilities to varying degrees. This is an important issue that forward-looking people will
have consensus and awareness of.
Montaigne once said: "In the process of writing a book, I just weave the flowers picked
by others into a wreath, and my contribution is just to string the flowers together with a fine
thread." This is also like what Newton said: "If I have seen further than others, it is by
standing upon the shoulders of giants." In the process of writing this book, I closely focused
on the concept of dynamic capability, and strung together the brilliant flowers of business
management, new technologies, and other fields to help you understand the world. Without
the blessings of those giants who came before me, this book would not have been so well-
rounded. As Yukichi Wildred Nakazawa said in his book "Creating Knowledge in Practice":
concepts and theories are like a beam of light, helping people in the darkness to see the
world from a certain angle and improve it. Different concepts may overlap in content, but
they do not affect their role as crutches and tools for understanding the world. I believe that
the concept and theory of dynamic capability have strong vitality and are a topic that

cannot be bypassed across cycles. It is an important lever for us to adapt and improve the
world.
Once, when chatting with editor Wang Lu, we talked about the issue of core
competence raised by Hamel. It was apparent that the material he used, such as
manufacturing and traditional R&D cases, was old and outdated, and readers would not buy
it. She said to me, "Tang, you can write a work on the core competencies of organizations in
the digital age." Her words carried weight, and I was interested. Thus began a three-year
journey of exploring dynamic capabilities, which led to the book we have today.
I have read more than 100 books on the subject of biological evolution, and it can be
said that the writing process of dynamic capability has been deeply influenced by the
wisdom of nature and by Darwin. We can metaphorically refer to organizations as species in
nature. Whether a species can live longer and better depends on whether it has core
competencies that match the environment, and whether it can refresh its dynamic
capabilities. As Darwin said, "It is not the strongest of the species that survives, nor the most
intelligent that survives. It is the one that is the most adaptable to change."
As artificial intelligence, the Internet of Things, blockchain, and other factors have had a
deep impact, we have moved from an industrial society to a knowledge society and a digital
society. This is a major environmental change that can trigger a surge of species and also
cause mass extinctions. The Cambrian explosion of life is similar to the rise of mobile
internet, artificial intelligence, and big data, giving birth to many new companies and new
kings. At the end of the Cretaceous period, there was another major extinction event on
Earth: a large number of reptiles that dominated the earth's surface disappeared, and
dinosaurs became completely extinct; more than half of the plants and other terrestrial
animals disappeared at the same time. The digital transformation will also select and screen
companies, just like the Cretaceous extinction event, and only those companies that match
the core competency requirements of the times or have plasticity will have the right and
opportunity to survive. This is an uncertain era, and the path and method of the evolution of

new business species is guided by future core competencies.
When viewed from a broader historical perspective, digital transformation is like a
major natural selection event during the Jurassic and Cretaceous periods, where species in
nature underwent significant changes. Many businesses are accustomed to conducting
improvement work through linear thinking, unaware that this is a window of opportunity for
the structured change of core capabilities. Biological evolution is divided into artificial
selection and natural selection. Digital transformation involves more evolution on the
artificial selection level. This means that after placing customer value creation at the center,
our organization, entrepreneurs, and managers should look to the future from the present
and refresh core capabilities, creating a sustainable competitive advantage through active
selection.
Successful companies may experience brief spurts of growth by seizing opportunities,
but great companies can endure and achieve sustained growth over time. The long-term
competitiveness of a company does not rely on its endowment, but its ability. Gary Hamel's
views on this issue are consistent with mine. Most companies may die due to the death of a
product or the termination of a business, while companies that remain prosperous can
continue to satisfy customer needs by possessing dynamic capabilities that enable them to
weather the changing market. This ensures that: 1. They can continuously create value for
customers; 2. They can create value better, faster, and more efficiently than their
competitors. Therefore, organizational dynamic capabilities possess competitiveness and a
sense of significance.
The path I have researched has shifted from core capabilities to dynamic capabilities.
The traditional dominant strategic management theory is Porter's industrial organization
theory, but as the limitations of core capabilities theory have emerged, it has been unable to
explain how enterprises can obtain competitive advantages and why some companies
possess sustained competitive advantages in a dynamic environment. In this context,
industrial economists, such as David J. Teece, proposed the concept of dynamic capabilities,

which is the ability of a company to integrate, build, and reconfigure internal and external
capabilities to respond to rapid changes in the environment. However, Teece's research is
more from an economic perspective, and he did not provide practical methods and systems
for guidance.
The rhythmic change of an organization and individual's core capabilities requires
multiple perspectives, including mental models, behavioral habits, psychology,
organizational incentives, culture, KPIs, and others. At this point, I want to emphasize that
digital transformation is just a relatively significant transformation and change. The
transformation and change of an enterprise have never stopped.
Regarding the topic of organizational core capability transformation, my research
encountered Professor John P. Kotter from Harvard Business School. Professor Kotter's
research results are outstanding, and he has focused on enterprise transformation
throughout his life. His research is a typical cross-disciplinary approach that applies
behavioral psychology to the context of transformation and change, proposing the eight
steps of change, which involves changes from cognition to behavior and integrates
leadership and professional discourse systems. Professor Kotter's interpretation focuses
more on the macro-transformation narrative of enterprises, while the key point of whether
the transformation can be successful lies in the problem of the new core capability
transformation of the organization.
Regarding the issue of organizational core competency transformation, my research led
me to encounter Professor John P. Kotter from Harvard Business School. Professor Kotter's
research is remarkable, and he has focused his entire life on corporate transformation. His
research is a typical cross-disciplinary approach, applying behavioral psychology to
transformation and change scenarios and proposing an 8-step change process, integrating
leadership and organizational professional discourse from cognition to behavior change.
Professor Kotter's interpretation is primarily focused on macro-enterprise transformation
narratives, and the key point of whether the transformation can ultimately succeed, the

problem of organizational new core competency transformation, has not been explored.
Therefore, this book combines research from multiple perspectives, such as behavioral
psychology, management, human resource management, corporate culture, and
communication, and focuses on practical operational methods for effectively changing
organizational core competencies, refreshing organizational capabilities, and promoting
competency transformation.
The content framework and focus of this book are concise, starting with the why, what,
and how of dynamic capabilities: why do we need to discuss dynamic capabilities? What are
dynamic capabilities, and where are they headed? How can we implement the dynamic
capabilities management process? The first part clarifies why we must prioritize dynamic
capabilities or, better put, how to approach this issue. The second part was originally about
where dynamic capabilities were headed. In this regard, the puzzle of future dynamic
capabilities is complex and diverse. After my induction and abstraction, over the next few
decades or a considerable amount of time, data intelligence, agility, connectivity, content,
operational symbols and meaning, customer relationship management, knowledge
management, and incentive empowerment will become key capabilities in organizational
competition. Although their names may change in the future, the overall direction is
determined. The logical relationships, classifications, and importance among these 8
dynamic core competencies will present some differences. Therefore, I have divided them
into two parts: universal capabilities in the digital intelligence era and functional-level
capabilities to form a clear logical framework that is easy to understand and absorb or
communicate.
Every company has its own inherent uniqueness, but if we abstract the ability clusters
from the statistical level of hundreds of thousands of companies, we will find that these 8
directions of dynamic capabilities are quite representative. Perhaps companies use different
names to describe their core competencies, but the essence of what they say is similar.
When I teach at business schools, I often ask, "What are Apple's core competencies?"
Experts in the field will say: 1. Industrial design and aesthetic design capabilities; 2. Strong

supply chain management system; 3. Innovation and disruptive capabilities; and internally,
Apple has a secretive core competency, which is open innovation capability and high-tech
integration capability. Apple can search for new technology and inventions from various
laboratories worldwide and integrate them to solve problems for customers, creating value.
Similar to Apple's high-tech integration capabilities, it is actually the ability to use external
knowledge in the knowledge management capability of the 8 dynamic competencies, but
Apple internally refers to it as new technology integration capability.
This becomes the second part of the DAC model for general capabilities in the era of
digital intelligence, with three chapters on data intelligence, agility, and connectivity. Part
Three discusses dynamic capabilities at the functional level, with five chapters on content,
symbols and meaning, customer relationship management, knowledge management, and
incentive empowerment.
Part Four focuses on addressing dynamic capability changes and how to achieve them,
including discussions on paths and steps. The book provides seven chapters on how to
change organizational capabilities and the steps to achieve structural change. The focus is
on achieving dynamic capability changes and obtaining future capabilities.
In writing this book, I told people around me that it was the most difficult and
significant book in my 20-year writing career. The narrative style may not meet all of your
expectations or may have some deviations in analyzing dynamic capabilities. However, as a
pioneer in the field of digital dynamic capabilities, this book is expected to provide
inspiration for future entrepreneurs and individuals facing the future. I hope that dynamic
capabilities can alleviate the anxiety of companies and individuals and bring comfort to this
restless world. This is my original intention for writing, and I welcome criticism and feedback.
Thank you.
Acknowledgments:

During the writing process, I consulted and referenced many research results from
various disciplines and experts. I would like to express my gratitude to all those who have
helped me, especially those involved in case studies. If there are any infringements of your
rights, please contact me. Thank you.
This book is the result of my conversations and exchanges with friends, colleagues, and
netizens over the years. I am grateful to all those who have helped me, and I express my
sincere thanks here.
I would like to thank Tang Zhaoming, Shen Yaozhen, Yang Sheng, Zhang Xifen, Yang
Kanbo, Tang Xingjuan, Tang Tingting, Tang Yu, Zhang Mingliang, Zhu Xiangshun, Cheng
Enkai, Tang Yiran, Zhang Zhuojia, Zhang Yuan, Zhu Junyu, Zhu Yuhan, Cheng Jingrui, and
Cheng Weirong for their direct and indirect help during the writing process. Thank you all!
I would also like to thank Zhou Zhonghua and Ou Jun for their support and assistance
in planning this book.
Finally, I would like to thank the companies that invited me to provide consulting,
training, and exchange cooperation, as well as the students who chose my course at
business schools. It is your practice and reflection that give the theory of dynamic
capabilities continuous vitality!
How to connect and contact me?
By reading this book, "Dynamic Capabilities," I hope to trigger some of your thoughts
and explore the path of transformation based on dynamic capability thinking and methods.
If you have anything to say, project cooperation, or any opinions, please send an email to
along5418@gmail.com or scan the QR code to contact me.

Chapter 1: The Great Disruption Era - How Enterprises Can Grow
1.1 What Can You Do Besides Anxiety?
The management of an enterprise is like the survival and development of a species in
an ecological environment. Every environmental change brings about a change in the rules
of the competition game and the emergence of new advantageous species. Human beings
are completing a large-scale migration from physical space to cyberspace.
With the influence of new technologies such as artificial intelligence, blockchain, and
the Internet of Things, as well as new business concepts and organizational ecologies,
traditional business is shifting from the paradigm of the industrial age to knowledge-based
and innovative business organizations. However, many discussions on this topic only scratch
the surface and focus on conceptual debates, without providing a clear path or grip for the
transition between old and new paradigms.
In the face of innovation, change, and transformation, business organizations are very
anxious. So, what can we do besides being anxious to resolve anxiety? Jeff Bezos of Amazon
said, "We should focus our time and energy on what will remain unchanged for the next ten
years." So, what will remain relatively unchanged in the future? The key is to shape the
dynamic capability of organizations, which is the only grip in this uncertain era.
The only way to resolve anxiety is to build core capabilities for the future from now on.
"The Origin of Species" has relevance and inspiration for the evolution of new business
species. From the perspective of the organizational life form, how can a species obtain the
right to sunlight, water, and survival in the face of competition and confrontation? The focus
of competition for new business species is to meet the core capabilities of future
environments.

The disappearance of dinosaurs was the result of environmental selection. Species that
survived were those that had core capabilities suited to the new environment and
competition. Previously, core capabilities of a species were often eliminated or evolved.
Digital transformation is in full swing, and there is an urgent need to migrate from
traditional core competency paradigms developed during the industrial era to new
capabilities in the era of artificial intelligence and blockchain, which require structured
changes. The only way for companies to win in the future is to start building the core
competencies necessary for competitive business organizations in future environments.
Only those with the core competencies required for the future can survive and achieve
sustainable competitive advantage over a broader time horizon.
Refreshing organizational dynamic capabilities or looking at digital transformation from
the perspective of core competencies will be a reality that companies must face for quite
some time, perhaps 10 to 20 years. Tencent CEO Ma Huateng stated in a speech at the
World Intelligent Connected Vehicles Conference that the future automotive industry
requires traditional automakers and internet companies to reshape the core competencies
of future new businesses: network connectivity, data processing, and security.
Zhang Ruimin said in an internal speech that in an uncertain era, it is more important to
have dynamic capabilities than core competencies, which means the ability to update your
core competitive strengths. Core competencies should change with the times, and failure to
self-disrupt will result in being disrupted by the times.
As an organism, organizations can draw on research in fields such as artificial
intelligence, blockchain, biology, and industrial economics to construct new ways of thinking
about and pathways for developing new core competencies for the future. We can reshape
our understanding of new core competencies such as environmental insight, market
capabilities, product capabilities, user capabilities, and organizational evolution capabilities.
Darwin did not say that the strongest or smartest species would survive, but rather those

that are highly adaptable to changes in their environment. This is the pathway for the
evolution of new business species in an uncertain era - guided by future core competencies
to inform current work.
As a new form of work that accompanies the sharing economy based on digitization
and networking, the gig economy brings a people-oriented organizational model and way
of working: from "enterprise-employee" to "platform-individual". The impact of the gig
economy on our work is only just beginning.
Traditionally, the workplace hoped to become a full-time employee and have stable
full-time work without changing jobs or only changing once throughout their career. Today,
people can rarely climb up a predetermined career ladder slowly, as changes happen so
quickly and have a significant impact on how we plan our careers and lifestyles.
The impact of the gig economy on people depends on the type of work they engage
in. The gig economy is a skill-based economy, and skilled workers are the big winners. It
provides us with more possibilities, allowing us to pursue our own journey and take our own
path. With the development of the gig economy, we can expect to become the real masters
of value and income, act within our circle of abilities, and learn outside our comfort zone
because it changes not only our way of working but also our way of life. The traditional
high-leverage, high-fixed-cost lifestyle is unsustainable in an economy where work and
income are subject to change.
John Hennessy, the former president of Stanford University and chairman of Google's
parent company Alphabet, talked about the core competencies that Stanford cultivates in its
students in an interview with Wired magazine. Firstly, to cultivate students' ability to
understand the consequences of moral behavior and important decisions. Hennessy said
that Stanford is working hard to strengthen students' recognition of diversity and different
viewpoints. Secondly, to teach students how to identify biases and make up for them.
Stanford has some dedicated courses that attempt to introduce core moral principles into

the field of technology. Thirdly, future job positions and contents will undergo significant
changes, and Stanford will train students in the ability to use tools.
Case: How artificial intelligence changes the dynamic capability of the medical industry
Artificial intelligence (AI) is a hot topic in clinical applications. According to data from
the United States, 84% of radiology clinics are using or preparing to use AI algorithms to
examine medical images. Vinod Khosla, a well-known technology investor in Silicon Valley,
even predicted that algorithms will replace 80% of doctors.
Global Science interpreted that in the early stages of AI applications in the clinical field,
it focused on analyzing medical images to evaluate whether patients were ill. In particular, it
tells an interesting story about a breast X-ray examination conducted by a professor at MIT.
The image showed some white spots in her breast tissue, which the doctor could not
determine what it was, but told her not to worry. Two years later, the professor took the
examination again and was diagnosed with breast cancer. It can be inferred that the
professor had cancer two years ago, but the doctor did not detect it.
The professor herself is a computer scientist, and she formed a team to develop an AI
algorithm to diagnose breast cancer based on female breast images. Five years later, the
algorithm was successfully developed. Experimental results showed that the accuracy of the
algorithm's cancer prediction far surpassed the clinical standard method. Therefore, the
professor inputted her previous breast image into the program, and the diagnosis given by
the program was that she had a 98% chance of developing breast cancer within five years.
This fully demonstrates that the algorithm defeated human doctors perfectly in reading
medical images.
Imagine that with the continuous iteration of AI algorithms, the function of reading
medical images may be replaced or weakened in the future. Therefore, the current jobs and
personnel that rely on this core competency to make a living will face collective

transformation and upgrading.
Regarding future core competencies, it is necessary for you to have strategic cognitive
ability. The essence of strategic cognitive ability lies in your fundamental or innermost
perspective on this world - who you are, your relationship with the world, and the
relationship between individuals and companies. In the era of intelligent new business, what
we urgently need to change is the paradigm of past commercial logic in our minds, and our
worldview on business and our relationship with the world.
The difference between individuals is the difference in cognition. Differences in the
worldview of business operators directly lead to differences or distortions in frontline
execution. In the era of intelligent new business, with the changes in competition and the
overall environment, how should we nurture our core worldview? From the perspective of
summarizing the new worldview in the book "Bursts" by Joi Ito at the MIT Media Lab,
emergence is superior to authority, pull is superior to push, the compass is superior to the
map, risk is superior to safety, disobedience is superior to obedience, diversity is superior to
ability, resilience is superior to strength, and the system is superior to the individual.
In this uncertain age, business operators must have probabilistic thinking. If some of
these worldviews can be integrated into the leadership or relevant business processes of the
company, and embrace probability, uncertainty, iteration and change, then our business
logic will switch to a new paradigm, and we can reshape new core competencies.
1.2 The era of great technological upheaval and major competency rupture
The age of artificial intelligence is disrupting various industries. As companies begin to
use intelligent technology seriously, many low-level employees suddenly find themselves at
risk and confused. According to a survey by Accenture on the future workforce, over 60% of
employees have a positive attitude towards the impact of AI on their work. Two-thirds of
people admit that they must develop their skills to use intelligent machines.

McKinsey's report on AI talent issues states that new skills and retraining are becoming
even more important. At least 54% of employees need to learn new skills to improve
themselves. Critical thinking, innovation, imagination, and service orientation will become
even more important. As a leader, carefully constructing a lifelong learning system within
the company will also become an important task for enterprises.
The German federal government has officially released its AI strategy with the slogan
"AI Made in Germany", allocating special funds to solve the "structural changes and
migration of national vocational skills in the AI era". Large companies and employees are
not on the same level. The leadership believes that only about one-quarter of employees
are prepared for the adoption of AI. Accenture's survey found that only 3% of senior
executives plan to significantly increase training budgets to address the skill challenges
brought by AI.
In the era of new technology, China's regional competitiveness is also facing significant
structural changes, from the traditional labor-intensive and physical labor management
capabilities and advantages, being forced to move towards a low-carbon, innovative
development model driven by technology. Faced with new competition in digitalization and
the global industrial landscape, it is necessary for the nation to move towards a new
direction, respecting knowledge, valuing technology, and inspiring the imagination and
creativity of the people. The transformation of China's core capabilities is urgent and
irreversible, and we must take action.
Tom Peters, a famous American management expert, has written many representative
works, including "In Search of Excellence." In the book "Dear CEO: 50 Personal Letters from
the World's Leading Business Thinkers," Tom Peters emphasizes that people are the ones
who work and create growth and profits, and people are the ones that truly matter.
Regarding the unemployment risks that artificial intelligence will bring to white-collar
workers, Tom Peters advocates that corporate leaders should clarify the company's moral

responsibility. "As a leader, your greatest moral responsibility is to do everything possible to
help each of your employees develop future core competencies, including 'soft' and 'hard'
skills. This is also the most sophisticated mid-to-long-term strategy for maximizing profits!"
In the age of artificial intelligence, the trend of future capabilities is changing. Future
employees will spend more time on activities where artificial intelligence is lacking, such as
managing personnel, applying professional knowledge, and communicating with others.
The skills and abilities that people need are changing, requiring more social and emotional
skills, as well as higher cognitive abilities such as logical reasoning and creativity. The
demand will shift towards higher cognitive skills, from activities that only require basic
cognitive skills to those that use more advanced cognitive skills. The demand for advanced
cognitive skills such as creativity, critical thinking, decision-making, and complex information
processing will soar. However, work activities that require basic cognitive skills (such as basic
literacy and arithmetic) and basic data input and processing skills will decrease.
Experts analyzed more than 100 skills profiles required by American occupations
through the US Department of Labor database and found that the importance of creativity,
complex problem-solving skills, and interpersonal skills is increasing sharply. In addition to
learning new technologies needed for future work scenarios, employees' new job skills,
especially their ability to interact with "human-machine + machine" and collaborate, need
to be strengthened.
Every intelligent employee should adjust their skills according to the new requirements
of artificial intelligence in the workplace. Feasibility within an organization is only possible
when both the company and its employees share the same goals in the new work
environment. It is necessary to identify the skills required for new tasks and their execution.
Then map the company's existing internal capabilities to new roles, and identify the need for
training and new skills. The changes in the ability structure at the individual level are
significant, and the changes at the enterprise organizational level are also apparent.

For example, in the automotive industry, traditional car companies' ability structure was
based on technical competitiveness in powertrains and chassis. Large-scale car companies
have platform/modularization capabilities. Car companies can develop and manage their
extensive product portfolios at lower costs and shorter development cycles. Platform and
modularization capabilities are great inventions by traditional car companies after fully
summarizing their experience in car manufacturing. However, as the industry changes
rapidly, pre-development has become a constraint.
The R&D, production, sales, and service network models constructed under the heavy
asset model make the automotive industry capital-intensive and talent/labour-intensive.
However, breakthroughs in technology and business models such as the internet and big
data have made the heavy asset model increasingly clumsy. These core capabilities no
longer have the advantage of acquiring market share and profitability. As new technologies
and business models develop, car companies are building the puzzle of new capabilities for
the next phase.
For example, the transformation from a product manufacturer to a service operator
requires new processes and capabilities. Forming core capabilities on the data chain to
position oneself in the entire value chain. Collecting consumer needs through the process of
serving users and distributing data to upstream suppliers, then strengthening oneself as the
main node in the data chain through cycles.
Only by working together can the government and society respond to this great
rupture. In the face of the impact of new technologies in the future, we need to
continuously conceive future work and support the structured changes in skills to adapt to
the changes. To achieve the structured change of employee skills, it is often difficult to solve
through internal company operations alone. It requires cooperation with internal and
external partners. Singapore provides sponsorship for individual learning to meet the needs
of national new skills structural changes. Singapore citizens above the age of 25 can choose
courses they want to learn from 500 training institutions, and the course costs are eligible

for tax deduction. Over 300,000 Singaporeans have benefited from this policy. In the United
States, the Aspen Institute's Future of Work Initiative also proposes to support lifelong
learning and new skills training from the perspective of tax deductions. These accounts are
jointly funded by employers, employees, and the government.
Even if new technologies create enough new jobs to offset the displacement caused by
technology, this paradigm shift will also bring many pains to individuals. Historically, during
the Industrial Revolution, even as productivity increased, average real wages stagnated for
decades, and wage growth only caught up with and exceeded productivity growth. The
transition period is very difficult for individuals who are affected.
Providing income security and career transition support for workers is essential. Income
support and other forms of transitional support can help unemployed workers find income-
generating jobs. In addition to retraining, a range of policies can help, including
unemployment insurance, public support, and portable benefits that track workers between
jobs. Longer-term policies may be needed to supplement work income to support total
demand and ensure social fairness. More comprehensive minimum wage policies, universal
basic income, or wage growth linked to productivity growth are all possible solutions.
The reason why I specifically bring up some details to talk about the intersection of
biological thinking and business operations is because I am deeply influenced by Darwin's
theory of evolution and the natural biological wisdom throughout the writing process.
Although it is not reflected much in the length of the book, the history of biological thinking
and its metaphors are the foundation of this book.
The transformation and change of businesses and biological evolution have the same
logic and path in essence. Looking beyond business management and seeing the digital
transformation, the context is very clear. In the face of digitalization, new consumer culture,
and international situations, businesses are like species under environmental changes, those
who adapt will survive, and those who do not will be eliminated. The key to both is the

ability to adapt to the environment.
3.1 Biological Thinking and the Evolution of Enterprises
The reason why I want to talk specifically about the connection between biological
thinking and business management is that I have been deeply influenced by Darwin's theory
of evolution and the wisdom of nature throughout the entire writing process. Although this
may not be reflected extensively in the length of the book, the history of biological thinking
and its metaphors are the cornerstone of this book.
Darwin's theory of evolution and the transformation and revolution of enterprises
essentially share the same logic and principles. Looking beyond business management and
examining the digital transformation, the trends are clear. Just like species adapting to
changes in the natural environment, companies adapting to digitalization, new consumer
culture, and international situations will survive, while those who do not adapt will be
eliminated. The key to both is the ability to adapt to the environment.
Hey, have you ever realized that throughout human history, we have experienced four
enlightenments, each of which has dealt a huge blow to our dignity but has also allowed us
to truly understand ourselves?
The first blow was when Galileo proposed the heliocentric theory, which told us that the
earth we live on is not the center of the universe. This made many people feel lost and
helpless. But we can still console ourselves by saying, "Although we are only a corner of the
universe, at least we were created by God."
The second blow was when Darwin discovered that humans actually evolved from
monkeys. This dealt a huge blow to our dignity, but we could still comfort ourselves by

saying, "Although our bodies are similar to monkeys, we have noble souls, morals, and
ideals."
However, in the third blow, Freud told us that humans are essentially as savage and
animalistic as animals, and that morals, ideals, and souls are only covering up our true
nature.
Now, we are facing the fourth blow: artificial intelligence. Especially with tools like GPT,
they can imitate human thinking, generate language, and interact in conversations, and
even create music and articles. This will bring tremendous pressure to those who create
content, as these tools can write articles just like humans!
However, these technologies are not perfect. They lack emotions and creativity, and are
difficult to understand human values and moral standards. Therefore, we need to think
about how to integrate artificial intelligence technology with human dignity, so that they
can truly benefit humanity.
History has shown us that each enlightenment has brought tremendous shocks, but at
the same time, it has also promoted our progress. Faced with the fourth blow, we should
open our hearts and explore how to find a balance between artificial intelligence and
humanity. Only in this way can we truly grasp the opportunities of this era and bravely meet
the challenges of the future!
The variation of organizational capability is based on the combination of external
stimuli (such as innovation from competitors, advancements in basic science, changes in
legal systems, etc.) and information from the enterprise's existing habits.
During the stage where organizational capability undergoes variation, the environment
plays a role in providing stimulus and material support. Organizational strategy,
responsiveness to stimuli, absorption and creativity in external knowledge all play important

roles in the variation process. A strategy that values innovation can provide direction for the
development of enterprise capability. Establishing future capabilities requires a clear
explanation of the enterprise's strategic direction.
The ability to respond to external stimuli and internal feedback plays a decisive role in
the timely development of new methods for the enterprise. If the enterprise cannot perceive
changes in the external environment and internal feedback, then changes in capability will
not even be discussed. Even if the enterprise can sense the changes, if it cannot respond to
them in a timely manner, changes in capability will be delayed, hindering the execution of
strategies that utilize dynamic capabilities to continuously innovate and gain a competitive
advantage over competitors.
In order to change its existing capabilities, the enterprise must continuously absorb
external knowledge. The ability to absorb external knowledge is known as absorptive
capacity, which is a key factor in the formation of the enterprise's dynamic capabilities. In
the stage where enterprise knowledge undergoes variation, the acquisition of new
knowledge provides a foundation for variation, while also limiting the direction and
dimensions of capability change.
Before the emergence of humans, natural and sexual selection constituted the entirety
of evolution, but after humans began domesticating animals and plants, artificial selection
emerged, which was one of Darwin's great discoveries. When humans wanted to obtain a
certain characteristic from a living organism, they could systematically modify the organism,
and as a result, for these organisms, humans replaced nature. Dogs are a new species that
humans obtained after domesticating wolves. In a litter of puppies, the one with the thickest
coat and the strongest body is raised, while the rest are abandoned. Through generations of
selection, the most suitable breeds for sledding can be produced naturally.
The most important content of evolution is actually "adaptability," which refers to the
total of a living organism's survival and reproductive abilities. As for which species can

survive and which individuals within a species can survive, it depends on three aspects:
natural selection, sexual selection, and artificial selection. Evolution began when life first
appeared on Earth and will never stop as long as life exists.
Variations with strong adaptability are retained, and over time, these variations
gradually accumulate, causing different organisms to follow different evolutionary paths and
completely become different species. Reproductive isolation between different species also
became a method of distinguishing between species.
The problem of enterprise evolution involves the direction and method of evolution.
Why do we need to evolve? It is for survival and to gain a competitive advantage. The
direction of evolution is relatively easy to determine: always focus on customer value, with
everything else being a means to that end. We must not forget our goal in pursuit of
means.
As for the method of evolution, different enterprises have different choices. Some
choose to actively evolve through self-revolution. They plan for the future and guide their
current operations accordingly, continuously developing core competencies that create
value for customers in a future competitive environment. Such entrepreneurs possess a
calm and composed demeanor as they navigate cycles of change.
In nature, biological evolution lacks agency or subjective intent. It is mostly driven by
environmental changes that bring about natural selection. Species that cannot adapt to
environmental changes are eliminated, while those that can become dominant. Genetic
information of such species is passed down from generation to generation, and this is the
principle of "survival of the fittest" that Darwin observed in the natural selection process
over millions of years.
Evolution in biology can be divided into artificial selection, natural selection, and sexual
selection. Digital transformation primarily involves the evolution of artificial selection. This

"hand of God" of artificial selection involves organizations, entrepreneurs, and managers
focusing on creating customer value, looking ahead to the future, refreshing core
capabilities, and actively choosing to construct sustainable competitive advantages. Digital
transformation has nothing to do with anything else, only survival matters.
In the face of digital transformation and change, there are two states: 1. Entrepreneurs
proactively seek change to make timely adjustments and evolve to ensure the organization
can survive, cross cycles, and continue to exist. 2. Going with the flow, like natural selection,
allowing chance factors to possibly survive. However, it is often very difficult to change
when forced into a corner, and ultimately either results in desperate measures or complete
failure.
From Silicon Valley and Israel, there are stories of startups blooming like glorious
fireworks. However, most startups are more like raising pigs, where once they are raised
well, they are sold off. This management philosophy and entrepreneurial mindset are
essentially speculative and not truly business-oriented. From the perspective of solving
supply and demand issues in economics, there may still be historical value in specific stages.
Most companies pursue a sustained altruistic profit, creating value for customers. Even
if they accidentally discover short-term needs in the early stages of creation, they will
continue to evolve in the process of management to find a suitable space for survival. This is
a typical process of corporate evolution.
Entrepreneur Wang Xing initially started his business with a focus on social networking
and successively created Kaixin and Fanfou. However, when he discovered the rise of
group-buying websites led by Groupon in the United States, he copied the model and
founded Meituan. In the Battle of the Hundred Groups, Meituan established itself as the
winner through strategies such as unsatisfied customers being able to receive refunds and
allowing cancelled orders. Through a series of business processes, it became evident that
there was a limit to the group-buying business model. Soon, Meituan learned from Ele.me

and deeply integrated their delivery model into their own business, which paved the way for
new development. As you know, previously, internet entrepreneurs would not easily touch
such operation-heavy, labor-intensive business models. To increase growth and evolve to
survive, Meituan's management team made the most difficult decision or forced action in its
history by recruiting over 100,000 delivery drivers. Meituan's strength in internet product
management gradually transformed into a service management model, and the
establishment of an operation-heavy approach laid a good foundation for its development,
leading to the evolution of many other businesses such as Meituan Maicai.
Meituan's evolution is a typical case of artificial selection, proactively seeking change
and continuous evolution guided by creating customer value. In the Battle of the Hundred
Groups, most companies were naturally selected and eliminated due to a lack of core
capabilities in creating value for customers and sustaining operations.
Why is digital transformation so important today? Our society is experiencing a major
shift from an agricultural and industrial society to an information and post-industrial society.
During this time of great disruption, traditional enterprises have been constructed based on
the main logic of the industrial era, such as efficiency, mass production, and large-scale
distribution, including a series of theories on management, organizational mindset, core
capabilities, and collaboration in the upstream and downstream industrial chain. In the
industrial era, there was continuous improvement and evolution, but during a paradigm
shift, there can be significant non-continuity or even a breakage. Our business operations
are facing significant structural changes, including a large-scale shift in organizational
mindset, processes and behaviors, and core capabilities. The choice of organization and
species will be determined during this major shift, which will bring about structural changes
in national and corporate fortunes, social status, power and industry ecology, and
competitive advantages. The significance and value of digital transformation during this
major change can be imagined. However, many business operators have not looked at this
major cycle from a historical perspective and believe that making minor improvements
under current conditions is enough, which is a serious mistake.

Mismatch between ability changes and environmental changes
Human beings have undergone over 6 million years of evolution. Although they cannot
compare with gorillas and chimpanzees in terms of strength and speed, they have adapted
to the environment through their developed brains and effective energy management. In
the end, Homo sapiens evolved into the only species that survived through the
development of language and culture. With the success of human evolutionary strategies,
cultural development has become an important aspect of modern human life.
In primitive societies, fat was beneficial to the body as it ensured a continuous supply of
energy to the brain. However, modern humans face an important problem: too much
energy. Sweetness is a taste that everyone likes. In primitive societies, sweetness meant
high-quality energy. In the agricultural era, humans increased the sweetness of plants
through artificial cultivation to cater to human tastes. The sweetness of wild apples is similar
to that of carrots. After human cultivation, the sugar content of apples is now dozens of
times higher than that of wild apples. In the industrial era, apples can be squeezed into
apple juice, removing plant fibers and increasing the sugar content per unit volume. In this
way, the sugar content in food gradually increased. The ingested sugar is broken down into
glucose and transported throughout the body. However, excessive blood glucose is harmful
to the blood, and humans must control their blood glucose within a reasonable range.
When the blood glucose level rises, the body secretes insulin to convert glucose into fat,
thereby reducing blood glucose levels.
Humans consume too much sugar. To control blood glucose levels within a reasonable
range, young people today have to secrete twice as much insulin as people did 50 years
ago. Excessive sugar intake causes humans to accumulate more and more fat. On the other
hand, as insulin secretion increases, the body's cells gradually become less sensitive to
insulin. In other words, previously, when insulin started to secrete, the cells would respond
and allow glucose to enter the cells. Nowadays, the cells do not respond well, leading to
high levels of glucose in the blood, and the body has to secrete more insulin to try to lower

the glucose levels. This vicious cycle continues and eventually leads to the development of
diabetes.
1.4 Transformation Begins with Changing Mindset
Over the past two centuries, a specific set of core competencies have gradually formed
in organizations and individuals in the paradigm of large-scale industrial production.
Organizations that inherently possess core competencies that match the times, or those that
make postnatal efforts to quickly build core competencies, have reaped rich rewards, while
those that do not have been marginalized by society.
The rules of business operations during the era of large-scale industry evolution
iteratively developed organizational and management methods based on hierarchical
thinking such as command and control. The automotive industry is a typical representative,
with organizations built around automotive research and development, design, production,
marketing, advertising, distribution channels, and after-sales service. Solidified processes
and redundant hierarchies are becoming the first barriers to break in digital transformation.
After digital transformation, organizations can revolve around changes in user demand,
involve users in design and manufacturing, gather community demand expression, and
realize reverse supply chain and production mechanisms of C2B. Through new
organizational methods, waste and inventory in car manufacturing will be greatly reduced,
while inventory is the DNA that traditional car production processes inherently carry, making
it unavoidable.
We live in an era of standardized efficiency logic deduction, where the common
approach is to determine problems and find solutions, guided by the industrial scale
allocation efficiency model. However, with the advent of artificial intelligence, new
requirements have been put forward for abilities such as imagination, knowledge-based,
and creativity.
In traditional industrial society, enterprise processing and focus mainly on rearranging
and combining production based on specific industrial elements such as steel and coal, and
large-scale distribution. In the new era of knowledge society, our core competencies will

revolve around the processing, presentation, and application of knowledge and experience
as raw materials.
Organizational core competencies are the result of innate abilities combined with
deliberate efforts. In different environments, certain abilities are chosen to be strengthened,
while others are chosen to be suppressed. One trend we see is that both Tencent and
Alibaba are actively strengthening their technological capabilities. In the early stages of
development, Alibaba's core competencies were more focused on operations and
marketing, while Tencent's core competencies focused on products. However, with the
advent of the AI era, the value of technology in business is becoming more prominent, and
organizations must strengthen and solidify their technological core competencies.
Fortunate organizations possess the core competencies they need to meet the
demands of a highly competitive environment. Of course, this is an ideal state of an organic
organization. Most organizations and companies lack one piece or need to make up for
something on the other side. Companies must shape their core competency puzzle in the
face of future industry competition rules in future scenario planning.
The events of numerous newspapers suspending publication have sparked continuous
discussions in society. In my view, the impact of the Internet is not on the news itself or its
content, but more on the traditional industrial-era organizational methods of news
gathering, editing, and distribution. In the age of the Internet, we still crave news and
valuable content, but the ways in which they are produced, edited, and delivered need to be
reinvented, creating new business models.
In the transformation of banks into the digital era, many frontline employees are more
focused on current processes and KPIs, unaware that they are losing their competitiveness
in the future. The rules of the game for bank organization and operation are mainly dictated
by breaking down various indicators for each branch, such as deposit-taking, mobile
banking installation and usage, and assigning tasks to each branch. Allocating indicators has
become a habitual action, with no distinction made between product attributes and their
inherent laws. Mobile banking, as a strategic opportunity for banks, may lose the mobile

market if bank branches do not have a strong presence. Due to the organizational
management system, the allocation of indicators to each branch has become a common
practice. This results in bank branches relying on lobby managers to promote mobile
banking KPIs, leading to false data, inactive users, and a missed opportunity for the future.
The traditional organizational and process structures built by the finance industry are one of
the main culprits causing the current predicament in the financial industry.
The most important factor that leads to the eventual demise of a company is the
disappearance of its core ability structure, or the mechanism for nurturing organizational
core abilities. When an organization lacks core abilities for the times, internal transaction
costs and operating costs become too high, putting them at a disadvantage in the
competitive landscape, and making it impossible to create value for customers. In such a
situation, the best strategy for an organization is to strategically reshape its core abilities,
actively seek opportunities, or perhaps end its life with dignity and restart anew.
Chapter 2: Dynamic Capabilities and Digital Transformation
2.1 Enterprises are Essentially a Collection of Abilities
As a theoretical achievement at the intersection of economics and management, core
competence is an important research area in strategic management, economics, knowledge
management, innovation theory, and other fields. Core competence is the source of
competitive advantage for enterprises. Every excellent enterprise possesses unique expertise
in several areas such as product development, technological innovation, management style,
marketing, brand image, and customer service, thereby forming core competence and
achieving a competitive edge in the industry.
Identifying and developing a company's core competence helps to maintain the
company's long-term competitive advantage. When determining a company's core
competence, identify the basic skills, abilities, knowledge, experience, technology, or
processes that enable your company to provide its unique set of products or services.

Determine how to use the company's core competence to develop strategic response
capabilities to gain a competitive edge. High-performance companies will develop new core
competencies and extend their existing competitiveness to new and future markets.
Companies with dynamic capabilities will recognize the needs and demands of customers in
new and future markets and develop the necessary capabilities to meet those needs and
demands.
American scholar Gary Hamel proposed the concept of Core Competence, becoming
an important pioneer in organizational capability issues. Hamel believes that core
competence is unique, difficult for competitors to replicate and imitate, and plays a decisive
role in the competitive advantage of enterprises.
McKinsey & Company believes that core competence is a combination of a series of
skills and knowledge within an organization that enables one or more of the organization's
businesses to achieve a first-class level. Core competence with dynamic and living nature is
a long-term strategic goal pursued by enterprises and is the source of sustained
competitive advantage. Core competence is a collection of internal knowledge within the
enterprise, such as employee knowledge and skills, product technology systems, market
management systems, and customer management.
Regarding core competence, my viewpoint is that core competence is the critical ability
required for individuals and organizations to continuously create user value in a specific
temporal and spatial context. Core competence emphasizes the ability to adapt to specific
temporal and spatial contexts. Core competence is a screened ability.
Two key points of core competence: firstly, whether it can effectively create user value;
secondly, whether it can adapt to competition and the environment in a specific temporal
and spatial context. These two points are the key criteria for this book's narrative and
assessment of core competence. Without these two points, there is no talk of core
competence.

Changes in the environment naturally highlight, strengthen, and solidify certain abilities
in a specific temporal and spatial context. Of course, from the perspective of operators or
individuals, core competence has a certain innate nature and dynamic ability.
The four criteria for identifying a company's core competency (VRIN) are: valuable, rare,
inimitable, and non-substitutable.
Valuable: A core competency must first and foremost be able to create value that
customers appreciate, such as significantly reducing costs, improving product quality,
increasing service efficiency, or enhancing customer utility, thus giving the company a
competitive advantage.
Rare: A core competency must be rare, possessed by only a few companies.
Inimitable: A core competency must be unique to the company and difficult for
competitors to imitate. It cannot be bought in the market like materials or machinery, but is
hard to transfer or replicate. Such inimitable abilities can bring above-average profits to the
company.
Non-substitutable: Competitors cannot substitute it with other abilities. It has an
irreplaceable role in creating value for customers.
A company is essentially a collection of capabilities, but not all capabilities can form a
company's competitive advantage. Only core competencies are the source of a company's
competitive advantage, and accumulating, maintaining, and applying core competencies are
the long-term fundamental strategies for a company. Core competency is the collective
learning ability within an organization, especially the ability to coordinate various
production skills and integrate multiple technologies together. Core competency not only
means integrating technology but also involves work coordination and value provision.

Core competence is a unique organizational ability that a company has accumulated
over the long term. It can continuously form core technologies through the organic
integration of enterprise resources and expand these technologies through core products,
thereby creating sustained competitive advantages. The sustained competitive advantage of
a company comes from its cultivation of core competence, which gives birth to new
products that competitors cannot predict, and this process is faster and has lower costs than
those of competitors.
Non-core competence
When we discuss core competence, non-core competence obviously exists. In the
narrative of this book, core competence refers more to the key abilities that cannot be
outsourced and are essential for creating value for users in a specific time and space. The
importance and contribution of abilities to creating user value differ in different time and
space contexts. Dynamic capability in this book refers to the ability to change the company,
but in order to better grasp the priorities, the emphasis is on core competence. However,
we should also understand that ability and core competence are just different names or
have different levels of importance in specific time and space contexts, but their essence is
the same.
Core competence is like the board in our bucket theory. If the key abilities cannot
support the benchmark, the value created for users cannot be achieved. As for non-core
competence, we can effectively supplement it to meet user value through social resources,
outsourcing, or a series of other ways.
Non-core competence is not optional. It is just that the organization's resources,
attention, and personnel are limited. Based on the principle of scarcity, core competence is
the key to creating user value. Of course, non-core competence is not contradictory to
creating value for users.

From the perspective of time and space context, the organization's core competence is
dynamically changing with the changes in the environment and competition. That is to say,
what was previously a non-core function may become a key piece in the ability puzzle. For
example, in the era of heavy industry, the core competence of companies was efficiency,
which included production and large-scale distribution systems. In that paradigm, the ability
to emotionally connect with customers was clearly a non-core function. However, in the era
of artificial intelligence and social networks, the ability to establish emotional connections
with users quickly and interact with them in real-time has become a critical piece in the core
competence puzzle.
From a biological perspective, environmental changes also bring about the selection of
the right to survival. The selection of species is based on the ability to adapt to the
environment. Only by adapting to the environment or possessing key abilities for
competition, can a species gain living space and priority. An often-cited example in biology
is the giraffe's neck length as a core ability for survival.
In the era of artificial intelligence, a phrase that is often mentioned is that human
competition is entering the era of right-brain competition. In the past era of heavy industry,
many of our jobs were monotonous, repetitive, and based on logical deductions due to
technological limitations. In this context, the ability to fit the paradigm became the ability
that society and the times valued. However, artificial intelligence is gradually replacing us in
performing simple, repetitive, and mathematical and logical operations. Therefore, core
competencies that align with the times, such as creativity and empathy, are highly valued in
the future competition of the workplace and business.
The structural changes of core and non-core competencies over time may be
unidirectional or cyclical. From the current perspective, the cycle of switching between core
and non-core competencies is relatively long, corresponding to the lifespan of an individual
or an organization.

2.2 The Core Logic of Dynamic Capability and SST Model
The core logic of dynamic capability is to constantly perceive changes in the
environment (political, economic, social, technological, cultural, etc.), understand the
implications of those changes, and refresh one's own capability model to create sustained
value for customers and gain a competitive advantage. The dynamic capability model
consists of three stages: 1. Perceiving changes in the environment; 2. Understanding the
game rules and establishing direction; 3. Changing capability through dynamic refreshment.
The SST model of the dynamic capability process can better inform our practice, as
there are key issues and challenges at each stage, and the order is also determined:
perceive changes, establish direction, change capability.
Dynamic capability is the ability to change an organization's capability. We live in an
uncertain age, and how can organizations maintain their competitive advantage? In a
rapidly changing era, organizations must dynamically refresh their capabilities to survive,
integrating existing internal capabilities and actively learning from all benchmarks to
respond to uncertain risks with agility.
A learning organization can seize opportunities, better create value for customers, and
gain a competitive advantage. Emphasizing organizational learning, focusing less on
competitors and more on external factors (i.e., social and customer needs), turning back to
analyze and refresh internal capabilities and resources, ultimately achieves altruism.
Dynamic capability is the ability for enterprises to integrate, build and reset internal and
external capabilities to adapt to a rapidly changing external environment. Competition is
actually a process in which an enterprise develops, accumulates, combines, and protects
unique skills and capabilities. Skill acquisition, knowledge and skill management, and
learning are key strategic issues in digital transformation. The assumption behind dynamic

capability is survival, long-termism, and the pursuit of a competitive advantage over a
certain period. Dynamic capability requires deliberate evolution and deliberate practice.
Dynamic capability is a universal rule and law that transcends cycles, not just applicable
to digital transformation. Each transformation has similar logic and game rules, but the
paradigm shift from industrial enterprises to digital enterprises is a larger paradigm shift.
This book uses digital transformation as an example to analyze the rules of dynamic
capability and transformation.
The strategic goal based on dynamic capability is to continuously create new
advantages. In a rapidly changing and unpredictable environment, all competitive
advantages are temporary, and clinging to existing advantages will lead to greater disasters.
Only by breaking existing balances carefully, constantly and unexpectedly responding to
opportunities and restructuring internal and external resources can a series of temporary
and incompatible new advantages be formed to ensure sustained competitive advantage.
Therefore, dynamic capability strategy is an innovation strategy.
2.4 Capability Transformation Rather Than Enterprise Revolution
When facing transformation or change that involves a collapse of business logic,
business models, users, and value chain networks, it may indeed be referred to as a
revolution of the enterprise. This involves starting over completely and is like a severe
survival of the fittest competition, which may result in the complete destruction of the
industry.
Capability transformation is similar to the evolution of biological organs. From the
perspective of Darwin's theory of evolution, when facing environmental changes, it is more
about the evolution of core capabilities or related organs to match the requirements of the
environment. It is not about revolutionizing all the functions of the entire species.

In the face of new environmental changes, we need to understand the rules of the
game and identify new core capabilities. We can obtain new capabilities through patching,
while taking into account existing structures, and through a certain time dimension of
evolution, we will eventually become a new species suitable for the new environment.
Market conditions are never static and always change in response to changing
circumstances. Therefore, the underlying assumptions of a company's strategy also change
accordingly. Sudden changes in market conditions or the emergence of new technologies
often disrupt well-designed strategies and business plans. Management teams tend to stay
within their own designed frameworks and are often not agile enough to understand the
external environment. They rely more on past information rather than predictions of the
future. Teams tend to ignore or even deliberately overlook new information that is
inconsistent with their existing systems.
Choosing a core capability based on expertise or choosing social division of labor? This
is a very interesting topic that is often confused when making choices for ourselves or our
organizations. Idealists believe that choosing abilities that we are interested in or good at is
the right way. From a rational perspective, human society is a large division of labor system,
and our status and benefits in society come from the role we play in assisting and
promoting social progress.
Choosing the capabilities required for social division of labor as core capabilities is
pragmatic. A person's life is only a little over 30,000 days, which is very short in the context
of human society. Therefore, in the division of labor system, we must consider whether our
abilities match the abilities required for social division of labor and the main theme. Of
course, if we possess a core capability that is different from others and is essential for the
world we live in, then it is indeed a great fortune in life! With billions of people in human
society, it is difficult for everyone's core capabilities to be fully showcased in specific social
environments, or for social division of labor to perfectly adapt and showcase core
capabilities. This is an inevitable friction and damping in the social division of labor system.

Albert Einstein was a great scientist, but personally, his greatest interest was not in
mathematics or physics, but in music, particularly playing the violin. Einstein's biggest dream
was to become a great violinist, but he was not naturally coordinated to play the instrument
and no matter how much effort he put into it, he could only reach a mediocre level in his
lifetime. One violinist even mocked Einstein, saying that his posture while playing was like
sawing wood. After Einstein became famous, someone arranged for him to play with a
famous pianist, but in the middle of the performance, the pianist refused to continue, saying
that the level was too low to cooperate. Fortunately, Einstein did not choose to become a
professional violinist, otherwise, the world would have had one more mediocre violinist but
one less top physicist.
Realistic effort is about finding ways to apply your core abilities to the mainstream
division of labor in society, or to seek out industries where your abilities can be matched. If
you cannot find a field that matches your abilities, you need to actively plan and learn the
core abilities that are needed by society. Core abilities can be innate or acquired, and
compromising to find your proper place in the big division of labor is key to living a fulfilling
life.
For a company, it is an organic part of the social division of labor, and it should focus
on developing its core abilities in a specific time and space to create value for customers.
Just as Jim Collins discussed in "Good to Great" about companies that can continuously
create value for customers across the industry life cycle, it is the constantly changing core
abilities that allow for the continued creation of value for customers. For a century-old
company, core abilities change along with the social competitive environment and customer
needs, and are crucial to creating social value and securing the right to survival, nothing
else.
2.6 Cross-cycle capability means dynamically changing capabilities.

Enterprise capabilities present a dynamic and non-equilibrium state. With changes in
the external operating environment and internal corporate goals, core capabilities continue
to accumulate, cultivate, develop, apply, maintain, and discard in an endless cycle, forming a
positive feedback loop.
The foundation of a hundred-year-old enterprise is to continuously create value for
customers, which is what society needs, not what the enterprise desires. In the context of a
hundred years, organizations continually update their core capabilities according to changes
in the environment, in order to support the process of creating customer value. In the era of
the Cambrian explosion, the topic of a hundred-year-old enterprise is no longer sexy, or
many enterprises have given up pursuing this goal. However, from the perspective of the
survival of living organisms, it is important for enterprises to dynamically cultivate and plan
their core capabilities to meet the requirements of different stages in historical cycles, in
order to ensure that such a game can continue to run.
In Silicon Valley's startup teams, many enterprises are like vast meteors streaking across
the sky, shining briefly and then disappearing. The paradigm of Silicon Valley's innovative
enterprises is to quickly gain the market and users through technological or product
innovation. At this stage, the core capabilities of entrepreneurial enterprises focus on
product capabilities, growth hacking capabilities, and public relations capabilities. After
reaching a certain scale, many startup teams are hampered by the lack of effective supply
chain management, organizational construction and management capabilities, and industry
ecological construction capabilities, leading to growing pains later on.
The core capabilities of innovative and entrepreneurial enterprises are different at
different stages. In the 0 to 1 stage, the ability related to the product, user acquisition, and
marketing are critical. From 1 to N, enterprises will be required to have organizational
management capabilities, financing and capital capabilities, customer management
capabilities, supply chain and related after-sales service capabilities, and so on.

The process of growth for a startup is like a journey of fighting monsters and
deliberately practicing core waist strength. Only those startups that can recognize the
demand for such abilities at different stages, and complete a perfect transformation and
evolution with the help of talent recruitment or consulting advisors, are the ones that we
can see survive. In the past, data has shown that more startups have gone into an
increasingly costly battle after completing their initial glorious blossoming.
During Meituan's development process, Wang Xing's team built a team model for
internet product core capabilities. As the strategic depth developed, entering the process of
relevant localized life services operations presented a great challenge to the team's
understanding and abilities puzzle. In this case, Meituan made every effort to recruit
experience-rich Gan Jiawei from Alibaba's China supplier team to manage the company's
on-site promotion team and localized business development.
Through deliberate team contact, Meituan gained new core capabilities, namely, the
ability to manage market promotion based on localization. It can be said that this course is
the process of Meituan's continued survival, and this species has built its own core
capabilities that are in line with the environment. Meituan's founding team was reorganized
into personnel, and relevant professional managers joined to stabilize the new processes.
After entering the scale, seeking talent from industrial-era management companies or
mature internet companies to strengthen certain capabilities became necessary. Facebook
recruited Sandberg back then. Jobs recruited John Sculley from PepsiCo, who had market
core capabilities, and even left a legendary story about Jobs convincing Sculley with "Do you
want to sell sugar water for the rest of your life or do you want to come with me and
change the world?" Of course, later the two had a falling out, Jobs was forced to resign
under pressure, and his return to Apple was a different story.
Many entrepreneurs' anxiety and unease do not come from a lack of big strategies or

big resources but often from the weakness that arises when their organization's core
capabilities are used to cope with the rapidly changing environmental challenges. Using
traditional existing organizational core capabilities to solve the challenges of a new
environment cannot be effectively solved and will lead to the whole team and organization
being filled with doubt and anxiety. In the face of such problems, our leaders need to clearly
define what core capabilities are necessary, requiring special attention and time.
Organizations need to ask themselves: Can our abilities support our vision, mission, and
values? Can they effectively meet customer value demands?
No matter what era it is, we need to have an attitude of philosophy change that is
useful, and organizations and individuals need to continuously take stock of their core
capabilities. In the process of flying, you usually need to change the engine, and the
difficulty can be imagined, but on the other hand, if the difficulty is not great, why are you
the one who can laugh in the end?
The concept of dynamic capability is a very valuable perspective for understanding and
dealing with the changing world of digital transformation. Of course, this perspective cannot
solve all problems, but you can gain inspiration from biology: the ones who survive and
keep surviving are those that have species that are in harmony with the environment. I hope
you and I can embrace the future together and shape our abilities into a state that is
needed by the environment and enjoyed by ourselves.
We can also examine the evolution of dynamic capabilities in the automotive industry
over the past century. The automotive industry case study shows how generation after
generation of heroes or sexy companies, in specific time and space scales, play in the flow
state on the race track through core capabilities, and gain temporary competitive
advantages.
The hand-crafted era of the automotive industry was mostly focused on invention and
innovation. The main contradiction during this period was how to manufacture dynamic