Dynamic Capabilities and Strategic Management

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This is a presentation given in the MBS MSc Innovation Management course taught by Prof. Silvia for group assignment to introduce and discuss the paper Dynamic Capabilities and Strategic Management by Teece D., Pisano G., and Shuen A. in 1997.

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  • As new bases of competitive advantage have gained in significance, old ways of looking at competition have been supplanted. Porter’s Five Forces framework (Porter, 1980), which applied the structure-performance paradigm of industrial organization economics to strategy, focused on evaluating suppliers, customers, and the threat of new entrants and/or substitute products. This framework is not without insight, but it’s not up to the task of revealing the dominant logic of value capture in most new industries, as well as many of the old. Dynamic capabilities can usefully be thought of as belonging to three clusters of activities and adjustments: (1) identification and assessment of an opportunity (sensing); (2) mobilization of resources to address an opportunity and to capture value from doing so (seizing); and (3) continued renewal (transforming). These activities are required if the firm is to sustain itself as markets and technologies change, although some firms will be stronger than others in performing some or all of these tasks. Performance of these activities draws on all the skills and disciplines used in the curriculum of business schools everywhere. The Dynamic Capabilities Framework helps organize and harness (academic) disciplinary knowledge so as to apply it to the task of building durable competitive advantage at the enterprise level.
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Dynamic Capabilities and Strategic Management

  1. 1. 2009 INNOVATION MANAGEMENT SEMINAR 4ON THE NATURE OF TECHNOLOGICAL KNOWLEDGE AND ITS IMPLICATIONS FOR SPECIALISATION AND INNOVATION “Never mind ! Let’s get it to market first.“ A Discussion of : Teece D., Pisano G., and Shuen A. 1997.Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18, 7, 509-534.*Prepared byAndreas Paparitsidis, Bac Hoai tran, Hsuan-Yi Wu (Jen),and Phillip C. JacksonOCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 1
  2. 2. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. STRATEGIC MANAGEMENT DYNAMIC CAPABILITIES AND  INTRODUCTION (BAC) - Models of strategy 1. emphasizing the exploitation of market power (competitive forces, strategic conflict) 2. emphasizing efficiency (resource-based perspective, dynamic capabilities approach)Teece D., Pisano G., and Shuen A. 1997.  TOWARD A DYNAMIC CAPABILITIES FRAMEWORK (JEN) - Markets and strategic capabilities - Processes, positions, and paths - Replicability and imitatability of organizational processes and positions  CRITIQUES (PHILLIP)  CONCLUSION AND DISCUSSION (ANDREAS) OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 2
  3. 3. INTRODUCTION -Introduce three existing paradigms - Competitive forces - Strategic conflict - Resource-based • And an emerging new paradigm – ‘dynamic capabilities’ - Processes, positions, and paths - Replicability and imitatability of organisational processes and positions • - Are they interrelated – complementary or competitive? • - Future directions?OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 3
  4. 4. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997.Dynamic Capabilities and Strategic Management - Purpose To provide a coherent framework which can both integrate existing conceptual and David J. Teece empirical knowledge and facilitate prescription. - Assumption GARY PISANO Firms can achieve and sustain competitive advantage by developing the dynamic capabilities approach to address rapidly changing environments. AMY SHUENOCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 4
  5. 5. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. - Definition • The term dynamic refers to the capacity to renew competences so as to achieve congruence with the changing business environment. • The term capabilities emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills resources and functional competencies to match the requirements of a changing environment.OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 5
  6. 6. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. - Definition • The term dynamic capabilities refers to the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environment. • It reflect an organization’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions.OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 6
  7. 7. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997.DYNAMIC CAPABILITIES FRAMEWORKProcesses the way things are done (routines, patterns of practice and learning)Positions current specific endowments (technology, IP, complementary assets, customer base, external relations)Paths strategic alternatives (presence or absence of increasing returns and attendant path dependencies) OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 7
  8. 8. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. The competitive advantage of firms lies with its managerial and organizational processes, shaped by its (specific) asset position, and the paths available to it. How firms Transferring or positions achieve and redeploying processes sustain competences from competitive one concrete advantage? economic setting to another paths replication A difficult-to-replicate or difficult-to-imitate imitation competence must be builtReplicate by the because it cannot be bought.firm itself or itscompetitors OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 8
  9. 9. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Organizational and managerial processesThe firm’s processes and Coordination/integrationpositions collectivelyencompass its competences Learningand capabilities. Reconfiguration & transformation DYNAMIC Technological assets Complementary assets Path Technological dependencies opportunities Paths CAPABILITIES Reputational assets Financial assets Organizational processes, shaped by the firm’s asset positions and Institutional assets Structural assets molded by paths, explain the essence of the firm’s dynamic Market (structure) assets capabilities and its competitive advantages. Positions
  10. 10. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Dynamic capabilities can be seen as an emerging and potentially integrative approach to understanding the newer sources of competitive advantage.OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 10
  11. 11. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Key Question to think: How some organizations first develop firm- specific capabilities and how they renew competences to respond to shifts in the business environment? (business processes, Market positions, expansion paths) Key point: To be strategic, a capability must be honed to a user need, unique and difficult to replicate.OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 11
  12. 12. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. CRITIQUES • Logical Conceptual Framework • Tautological • Dynamic Capabilities - the firms ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments • Difficult to operationalize • Lack of algorithm to translate environmental factors into capabilities model • Path dependency and the reconfiguration dynamicOCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 12
  13. 13. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. CRITIQUES • A definition of dynamic capabilities should go beyond a reference to competence and routines to include the firm’s ability to readapt established routines in order to respond to the environmental changes • It should take advantage of the four paradigms to solve complex problemsOCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 13
  14. 14. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Key to summarize: • ‘Dynamic Capabilities approach is to stress exploiting existing internal and external firm specific competences to address rapidly changing environments. • It emphasizes the development of management capabilities, and difficult-to- imitate combinations of organizational, functional and technological skills.OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 14
  15. 15. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Paradigms of Strategy: Salient CharacteristicsOCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 15
  16. 16. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Discussion1. At which point should a firm decide that instead of constantly adjusting to changing environments, its time to adapt the environment to its capabilities and competences?2. Do you believe that these four different strategic approaches are complementary or competitive?
  17. 17. Dynamic Capabilities and Strategic Management Teece D., Pisano G., and Shuen A. 1997. Title Dynamic capabilities: understanding strategic change in organizations Authors Constance E. Helfat, Sydney Finkelstein, Will Mitchell, David J. Teece…FURTHER READING Edition Illustrated Publisher Wiley-Blackwell, 2007 ISBN 1405159049, 9781405159043 Length 147 pages Title Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth Author David J. Teece Edition illustrated Publisher Oxford University Press US, 2009 ISBN 019954512X, 9780199545124 Length 272 pages OCT. 30, 2009 2009 INNOVATION MANAGEMENT BMAN71471 17

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