- Professor David Teece discusses the importance of dynamic capabilities for firms facing deep uncertainty. Dynamic capabilities refer to a firm's ability to integrate, build, and reconfigure internal and external competencies to address changing environments.
- Ordinary capabilities focused on efficiency are no longer sufficient. Dynamic capabilities including sensing opportunities, transforming through strategic shifts, and seizing resources to deliver value are critical for long-term success.
- Speed of execution is important for dynamic capabilities. Firms must sense changes and seize opportunities rapidly through agile asset orchestration to maintain competitive advantage in volatile markets.
There was a full house for the latest Charles Cooper memorial lecture, given by Professor Sidney G. Winter, former Chief Economist of the US General Accounting Office. Professor Winter spoke at length about ‘Dynamic Capability — The Concept and How It Helps Us Understand Economic Change’ in a session rounded off by more questions than time allowed. http://www.merit.unu.edu/permalink.php?id=993
The average Fortune 500 Company today can expect to enjoy a run of about 40 to 50 years. That may sound like a respectable life span until you learn there are large and small companies in the World that have been around for two, three and even four centuries .
What’s the secret to their longevity ?
Long-lived companies don’t focus solely upon economic activity. Instead , their goal is to build a community that grows & thrives beyond the individual contributions of each generation.
The idea may sound radical but it’s the foundation for a variety of other institutions including Churches, Universities, and even armies that were established centuries ago & continue to flourish today. These institutions & their corporate counterparts exhibit the behaviour & select characteristics of living organisms. They learn, develop an identity, build relationships with other life forms, grow and eventually die. They are, in fact, living entities.
Living companies, like all organisms, exist primarily to survive & fulfil their maximum potential. Just as work is a means to an end for you, making money by producing goods & services is a means to an end for a living company. Their end is to live.
They stay alive by
· Learning & choosing to adapt to their environment
· Creating strong identities as tightknit communities
· Paying attention to their relationships with both members & external agencies
· Controlling their growth by spending money frugally.
Understanding how a company can be a living entity is a first step towards increasing its life expectancy.
The enclosed document captures Some Impressionistic takes how a living company learns, develops a strong identity, nurtures relationships & evolves to a ripe old age.
Presentation to the UK Association of Proposal Management Professionals (APMP) at the 2015 Annual Conference.
The presentation shows that most bid teams want and need better Competitive Intelligence (CI). It argues that the biggest problems with CI are not lack of money or time. What is needed to improve CI are changes in the way we view things and a recognition of what is really important (signals) to filter from the noise.
For the 20th Anniversary of Strategy+Business, we threw a virtual party - inviting key thinkers in management history. These are the management and business ideas deemed most valuable by a panel of experts - and then organized according to the problems they help solve. This is a unique way to quickly glean the management ideas that could be useful to you, and where to learn more about them.
There was a full house for the latest Charles Cooper memorial lecture, given by Professor Sidney G. Winter, former Chief Economist of the US General Accounting Office. Professor Winter spoke at length about ‘Dynamic Capability — The Concept and How It Helps Us Understand Economic Change’ in a session rounded off by more questions than time allowed. http://www.merit.unu.edu/permalink.php?id=993
The average Fortune 500 Company today can expect to enjoy a run of about 40 to 50 years. That may sound like a respectable life span until you learn there are large and small companies in the World that have been around for two, three and even four centuries .
What’s the secret to their longevity ?
Long-lived companies don’t focus solely upon economic activity. Instead , their goal is to build a community that grows & thrives beyond the individual contributions of each generation.
The idea may sound radical but it’s the foundation for a variety of other institutions including Churches, Universities, and even armies that were established centuries ago & continue to flourish today. These institutions & their corporate counterparts exhibit the behaviour & select characteristics of living organisms. They learn, develop an identity, build relationships with other life forms, grow and eventually die. They are, in fact, living entities.
Living companies, like all organisms, exist primarily to survive & fulfil their maximum potential. Just as work is a means to an end for you, making money by producing goods & services is a means to an end for a living company. Their end is to live.
They stay alive by
· Learning & choosing to adapt to their environment
· Creating strong identities as tightknit communities
· Paying attention to their relationships with both members & external agencies
· Controlling their growth by spending money frugally.
Understanding how a company can be a living entity is a first step towards increasing its life expectancy.
The enclosed document captures Some Impressionistic takes how a living company learns, develops a strong identity, nurtures relationships & evolves to a ripe old age.
Presentation to the UK Association of Proposal Management Professionals (APMP) at the 2015 Annual Conference.
The presentation shows that most bid teams want and need better Competitive Intelligence (CI). It argues that the biggest problems with CI are not lack of money or time. What is needed to improve CI are changes in the way we view things and a recognition of what is really important (signals) to filter from the noise.
For the 20th Anniversary of Strategy+Business, we threw a virtual party - inviting key thinkers in management history. These are the management and business ideas deemed most valuable by a panel of experts - and then organized according to the problems they help solve. This is a unique way to quickly glean the management ideas that could be useful to you, and where to learn more about them.
Issue | McKinsey Quarterly 2013 Number 4
@McKQuarterly
Strategy to beat the odds
Examines how to make wise strategic choices, mobilize the C-suite to take advantage of big data, use social technologies to engage employees and transform organizations, and build vibrant communities with help from companies.
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dialogue throughout your company.
Have you tested your
strategy lately?
‘What’s the next new thing in strategy?’ a senior executive
recently asked Phil Rosenzweig, a professor at IMD,1 in Switzerland. His
response was surprising for someone whose career is devoted to
advancing the state of the art of strategy: “With all respect, I think that’s
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natural in a field that emerged through the steady accumulation of
frameworks promising to unlock the secret of competitive advantage.2
In other cases, the culprit is torrents of data, reams of analysis, and
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Chris Bradley, Martin Hirt, and Sven Smit
1 International Institute for Management Development.
2 For a rich account of strategy’s birth and growth as a field, see Walter Kiechel, The Lords of
Strategy, Boston, MA: Harvard Business School Press, 2010.
J A N U A R Y 2 0 1 1
s t r a t e g y p r a c t i c e
2Have you tested your strategy lately?
strategies, for two reasons. First, companies develop strategy in many
different ways, often idiosyncratic to their organizations,
people, and markets. Second, many strategies emerge over time rather
than from a process of deliberate formulation.3
There are ten tests on our list, and not all are created equal. The first—
“will it beat the market?”—is comprehensive. The remaining nine dis-
aggregate the picture of a market-beating strategy, though it’s certainly
possible for a strategy to succeed without “passing” all nine of them.
This list may sound more complicated than the three Cs or the five forces
of strategy.4 But detailed pressure testing, in our experience, helps
pinpoint more precisely where the strategy needs work, while gener-
ating a deeper and more fruitful strategic dialogue.
Those conversations matter, but they often are loose and disjointed.
We heard that, loud and clear, over the past two years in workshops
where we explored our tests with more than 700 senior strategists ...
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Winning with Dynamic Capabilities in Uncertain Times
1. WINNING WITH DYNAMIC CAPABILITIES
IN UNCERTAINTIMES
Professor David J. Teece
Institute for Business Innovation, UC Berkeley
December 5, 2018
Donga-A Business Forum 2018
2. Theevolutionofstrategicmanagement&“research-based”thinking
2
5 Forces
-Industry
attractiveness is
the central focus
-External forces
dominate
-Fate = static, purely
competitive markets
(low profit)
Resource Base
View (RBV)
-VRIN assets drive
value creation
-Barriers to
competition
determine
longevity
-All 4 VRIN
traits necessary to
sustain advantage
Dynamic Capabilities
-Markets are dynamic
and competition is
often disruptive
Asset orchestration &
strategy drive
advantage
-Reshaping ecosystems
& biz models is critical
1980s 1990s 2000+
Deep
Uncertainty
Risk
1960s
DONG-A BUSINESS FORUM - 12.5.18
HARVARD
(Porter)
UCLA
(Barney-Rumelt)
UC BERKELEY
(Pisano-Teece)
3. ThefundamentalquestioninStrategicManagement:
Howdofirmsbuildlong-runcompetitiveadvantage?
Dynamic Capabilities is critical to long-term robustness of firms facing deep uncertainty.
Hallmarks of dynamic capabilities:
Strong leadership
Sensing & Sensemaking
Asset Orchestration
Agility
Urgency
Not about efficiency; it’s all about effectiveness, adaptability, and entrepreneurship
3
*Teece, et. al., “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18:7, p. 516 (August 1997).
DEFINITION OF DYNAMIC CAPABILITIES: “THE ABILITY OF AN ORGANIZATION AND ITS MANAGEMENT
TO INTEGRATE, BUILD, AND RECONFIGURE INTERNAL AND EXTERNAL COMPETENCIES TO ADDRESS
RAPIDLY CHANGING ENVIRONMENTS.”*
DONG-A BUSINESS FORUM - 12.5.18
5. Capabilitiesandtoolsrequiredforstable&uncertain
environmentsaredifferent
5
Certainty Risk Uncertainty Ambiguity Chaos/Ignorance
Newer/Tools/Approaches
Scenario Planning
Peripheral Vision
Total Risk Management
Real Options Analysis
Systems Thinking
Idealized Design
Legitimation Theory
Honing Institution
Complexity Theory
Cost Benefit Analysis
Net Present Value
Linear Programming
Point Forecasting
Optimization Theory
Utility Theory
Decision Trees
Bayesian Updating
Monte Carlo Simulation
Portfolio Theory
Stochastic Modeling
Insurance & hedging
Known Unknown Unknowable
Traditional Tools/Approaches
Domain of Ordinary Capabilities
Domain of Dynamic Capabilities
DONG-A BUSINESS FORUM - 12.5.18
6. StrategicManagementinaVUCAworldrequires
differentiatingbetweenrisk&uncertainty
6
Pr(DIA)
Pr(CIB)
Risk
C D E F
prB
Pr(FIB)
Pr(CIA)
prA
Alternative futures with
known probabilities & known
conditional probabilities
F1
F?
F?
F?
F?
F?
F? F?
F2
F3
F4
F?
F?
F?
F?
Uncertainty
Unknown Probabilities and Undefined
Futures
F 1-4 are possible futures
F? are undefined futures
F?
V –Volatile (oil prices)
U – Uncertain
C – Complex
A – Ambiguous Policies
(ex., auto’s, retail, financial
services)
What’s not VUCA?
DONG-A BUSINESS FORUM - 12.5.18
7. 7
Too many firms have perfected ordinary capabilities,
but in the process have relegated dynamic capabilities
Ordinary capabilities are about doing things right:
• Technical efficiency has primacy
• Best practices are the “be all and end all”
Dynamic capabilities are about doing the right things:
• Innovation has primacy
• Best practices are of secondary importance
WHY?
With deep uncertainty, its more important to find the right products to provide – if you
can produce them well enough you can still win.
DONG-A BUSINESS FORUM - 12.5.18
8. Famousstrategistsagreethatordinary
capabilitiesmatterless
“Numbers alone confer no advantage.”
– Sun Tzu, 5th Century B.C. Chines strategist
“It does not matter who is stronger....”
– Miyamato Musashi, 17th Century Samurai warrior-philosopher
8
HAVING LARGER FORCES HELPS BUT IT IS NOT DECISIVE.
STRATEGY AND CULTURE (MORALE) MATTERS.
DONG-A BUSINESS FORUM - 12.5.18
9. Storytellershaveknownabouttheproblemforages:
9
Lewis Carroll, “Through the Looking Glass”
• Firms learn and sometimes advance, but others copy/imitate/emulate and take advantage that way
• Learning does not lead to a competitive advantage…imitation is the reason advantage (based on ordinary
capabilities) is repeatedly lost.
• Corporate burnout is often caused by running fast to stand still and is often, but not always, a symptom of
the absence of dynamic capabilities.
“The Red Queen has to
run faster and faster in
order to keep still
where she is.”
DONG-A BUSINESS FORUM - 12.5.18
10. W. Edwards Deming, the father of quality and metrics, was aware
of the conundrum from the outset:
“He who would run his business with visible figures
alone will soon have neither a business nor visible
figures to work with.”*
10
William Edwards Deming
*See “Out ofThe Crisis,” byW. Edwards Deming
DONG-A BUSINESS FORUM - 12.5.18
11. 11
The prioritization of ordinary capabilities can
weaken dynamic capabilities & vice-versa
Benner and Tushman (2003) stated the tradeoff/risk
as follows:
“Activities focused on measurable efficiency and variance
reduction drive out variance-increasing activities and, thus,
affect an organization's ability to innovate and adapt outside
of existing trajectories ... Core capabilities may become core
rigidities” (Benner and Tushman, 2003: 242)
DONG-A BUSINESS FORUM - 12.5.18
12. “Ordinary”(ornormal)Capabilities:oftennecessary,but
neversufficientinVUCAworlds
12
Ordinary capabilities reflect technical efficiency in Operations,
administration and governance
Routines/standard operating procedures are key to ordinary capabilities
“Best practices” logic connected to strong ordinary capabilities
Admittedly, not everyone gets the simple stuff right
Adoption of ordinary capabilities by rivals is enabled by:
More information in the pubic domain
Better business school training
Management consultants and footloose employees
Getting ordinary capabilities right is a necessary but not sufficient
condition for success in a VUCA world where best practices are rapidly
disseminated and emulated.
DONG-A BUSINESS FORUM - 12.5.18
13. SunTzuemphasizedtheinterplay
betweenchengandch’i
Cheng – Ordinary (orthodox) maneuvers
• Forces lined up for battle with chariots on the wings (in full view of the enemy)
• No surprises
• The enemy can assess/measure strength
Ch'i – Dynamic (unorthodox) maneuvers
• Favors unanticipated surprise elements
• Supports “a charge out of nowhere to strike the rear”
• Lawrence of Arabia was a master at ch‘i – he articulated 15 (VUCA-based) principles
of guerrilla warfare (#15: make a virtue of the individuality, irregularity, and
unpredictability of guerrillas.)
13
DONG-A BUSINESS FORUM - 12.5.18
14. Developingdynamiccapabilities–
throughasenseofch’i
Musashi and Swordmandship (The Book of Five Rings)
Ordinary Capabilities: Do basic exercises until the weapons become
an extension of one’s own arm – technical excellence (learning to
do the expected well) – but this will only allow you to win 50% of
the time against an equally proficient opponent.
Dynamic Capabilities: Requires a different type of training to
generate ch’i and use it with cheng instinctively.
14
Exploiting the magical element in ch’i is what gives focus and
direction and competitive advantage.
DONG-A BUSINESS FORUM - 12.5.18
15. • The right metaphor isn’t chess; it’s mixed martial arts.
• Markets are often occupied by scores, if not hundreds, of
competitors. Wars have a much smaller number of
belligerents.
15
Militaryconflictissimplerintheabstract
thanbusiness
Business Competition Military Warfare
Win customers Destroy adversaries:
physically, morally, mentally
Rely on people working
together under uncertainty
Rely on people working
together under uncertainty
Shape the environment
before the first shot is fired
Hard to shape the extreme
Goal: Strategy
16. FromOrdinarytoDynamicCapabilitiesintheUSArmy
16
“We had a culture in our forces, of excellence. It was how good
can I be at my task?”…“But that’s not as important as how
well those pieces mesh together.”
“THE REAL ART is [in] cooperating with civilian agencies,
it’s cooperating with conventional forces, IT’S TYING THE PIECES
TOGETHER. That’s the art of war, and THAT’S THE HARD PART.”
-Quotes from General Stanley McChrystal, Foreign Affairs (March/April 2013)
DONG-A BUSINESS FORUM - 12.5.18
18. 18
Indra Nooyi on Dynamic Capabilities vs Efficiency Choices at Pepsi
“I had a choice. I could have gone pedal to the metal, stripped out costs,
delivered strong profit for a few years, and then said adios. But that wouldn’t
have yielded long term success. So I articulated a strategy to the board
focusing on the portfolio we needed to build, the muscles we needed to
strengthen, the capabilities to develop…we started to implement that
strategy, and we have achieved great shareholder value while strengthening
the company for the long term.”*
*Indra Nooyi and Adi Ignatius, “How Indra Nooyi Turned Design Thinking Into Strategy: An Interview with PepsiCo's CEO,”
Harvard Business Review (September 2015).
DONG-A BUSINESS FORUM - 12.5.18
19. Inbusiness,engagewithcheng
(ordinary)butwinwithch'i
(dynamic)
Japanese entry and eventual success in the
US car market in the 70s and 80s
• Oil shock of the 73/74 allowed fuel efficient Japanese
cars to get a toe hold in the US market.
• But when the prices settled down, the Japanese imports
did not fade away. They had unsurpassed quality,
reliability, fit and finish, and exciting design.
(e.g., Datsun [Nissan] 280z)
19
DONG-A BUSINESS FORUM - 12.5.18
20. SensingandSensemaking
20
The ability to foresee future opportunities
and threats…what Jack Welch (former CEO
of GE) once referred to as the ability to
“see around corners.”
Jack Welch
“Sensing activities are the firm’s antennae, amplifying weak signals into
data streams that are collated for diagnosing, interpreting and creating a
variety of scenarios – notably including the exploration of how a restructured
eco-system could increase a competitive advantage.”*
*Developing Organizational Resilience: A Dynamic Model to Sustain Competitive Advantage,” Teece, Raspin, and Cox. 2018
DONG-A BUSINESS FORUM - 12.5.18
21. Seizing/AssetOrchestrationiskey:
21
Source:Krupp,Stevenand Paul J.H. Schoemaker,Winning the Long Game: How Strategic Leaders
Shape the Future, Public Affairs/Perseus,2014.
Tom Watson at IBM committed the
financial capital and technical resources
to develop and deploy the pivotal IBM
360 system while competitors acted
cautiously.
Leadership is very different from
Managing – it usually requires making
bold investments and coordinating
activity inside and outside the
enterprise.
DONG-A BUSINESS FORUM - 12.5.18
22. Assetorchestrationiscentralto
Apple’sDynamicCapabilities
22
“Apple still has strong growth opportunities
because of its ability to work simultaneously
on hardware, software and services… Apple
has the ability to innovate in all three of these
spheres and create magic… This isn’t
something you can just write a check for. This is
something you build over decades.”
-Tim Cook, Apple CEO (Taipei Times, February 2013)
DONG-A BUSINESS FORUM - 12.5.18
23. Transformationmustoccurtoo
23
E.g. Haier:
• Haier (China) has gone through multiple transformations
• At its core, Haier has transformed
from “an executive culture to an entrepreneurial culture.”
1
Phase 1
The inception of
Ren Dan He Yi
Phase 2
Turned structure of
the organization into
that of an inverted
pyramid
Phase 3
Featured the
transformation into
a self-organized
enterprise
Phase 5
Turned the
organization into a
community-based
ecosystem
Phase 4
Broke the
organization into
microenterprises.
RenDanHeYi 1.0/ RenDanHeYi Win-Win Model RenDanHeYi 2.0
Interview with Zhang Ruimin, June 19, 2017, MIT Sloan Management Review with Paul Michelman
Strategy, urgency and learning
DONG-A BUSINESS FORUM - 12.5.18
25. Failuresintimelysensingcanbedisastrous
• French tanks were state of the art
• French had great advantage in artillery
• The allies knew that an attack was coming
• Germany had only a limited number of modern tanks
(Treaty of Versailles limitations had been binding)
Reasons for defeat:
• Allied failure in sensing – didn’t know what, when and
where on the battlefield
• Panic and confusion followed
• French retreat (55th Infantry Division) from the West
Bank of the Meuse River became a rout
• Germans didn’t stop and consolidate – they kept
pressing forward – each hour ahead is an advantage
• However, the British did pull off a successful withdrawal
from the beaches of Dunkirk
25
German
boats
crossing
Meuse River
The Battle of Sedan (1940): The French & British
Should Have Won But Didn’t
DONG-A BUSINESS FORUM - 12.5.18
26. “French counter-movements were repeatedly thrown out
of gear because their timing was too slow to catch up
with the changing situation …The French, trained in
the slow-motion methods ofWorldWar I, were mentally
unfit to cope with the new tempo, and it caused a
spreading paralysis among them.” *
26
*Captain B.H. Liddell Hart, Strategy (2016),Tannenberg Publishing
Speed of execution (“seizing”) matters on the battlefield
The blitzkrieg, and British withdrawal at
Dunkirk (1940)
DONG-A BUSINESS FORUM - 12.5.18
27. 27
General de Gaulle recognized the
importance of urgency/agility, too
“You have to be fast on your feet and
adaptive or else a strategy is useless.”
Charles de Gaulle, French general and statesman
DONG-A BUSINESS FORUM - 12.5.18
28. Urgency/timehasbeenrecognizedasfundamental
tostrategyinthemarketplace
Yamaha-Honda motorcycle “war”
of the 70s
• Honda introduced 113 new models to replace the what it had
• Honda shaped the market by experimenting with new models
• Yamaha could only introduce 37, which were drab in
comparison
28
Fast decision cycle time is an important dynamic capability
See G. Stalk, “Time – the next source of competitive advantage,” Harvard Business Review, 1988
DONG-A BUSINESS FORUM - 12.5.18
30. Failuresinstrategycanbedisastrous,too…
Crimean War, Charge of the Light Brigade – 1857
600 British cavalry charged the mass guns of the
Russians and continued the attack despite
tremendous losses only 150 made it back to their own
side. Alfred Lord Tennyson’s line, “Someone had
blundered. There’s not to reason why, theirs but to do
and die into the Valley of Death rode the six hundred.”
US Civil War, Battle of Gettysburg – July 3, 1863
Confederate commander Robert E. Lee ordered final
attack into the center of the Union lines. 75% of the
men were lost.
30
Painting of The Battle of Balaclava
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31. 31
Dynamic capabilities is about fundamental agility –
the ability to redeploy assets smoothly,
quickly, and strategically (i.e., smartly)
• Dynamic capabilities is NOT the ability to do commonplace things
faster and cheaper
• It is NOT the reduction in the time required to reach best practices
(which are rooted in efficiency initiatives like Six Sigma or Value
Engineering)
• It’s the ability to do things fast but also strategically (i.e., smartly),
which requires good sensing and sensemaking
Entrepreneurial agility is management’s ability to redeploy physical,
financial and human assets into new and better commercial avenues.
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33. Sensing:
o “Samsung’s internal co-opetition is designed to
enhance its sensing capabilities.” (Song, Lee, &
Khanna, California Management Review,
Summer 2016)
o Used dual sourcing (cooperation) to pick up weak
signals/intelligence for supplier’s
o Different vendors have different information and
perspectives
33
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34. Seizing:
o Used vertical integration to source application
processors, DRAMs, display panels, and camera
modules
o Internal procurement >60% of requirements
o Used co-opetition and dual sourcing to keep
internal capabilities highly competitive
o Internal procurement without internal favoritism
o Held in-house technology forums and conferences
o Fast execution aided by intense inter-unit
competition
34
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Shin Jong-Kyun, President & CEO of Samsung Electronics
“Samsung Electronics can feel more like a whip than an umbrella.”
35. Transforming:
o Used internal competition as a means of recombining and
reconfiguring
o Knowledge transfer to assist in capability enhancements
35
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Shin Jong-Kyun unveiling Smartwatch, Sept. 2013
36. o Learning is critical o Entrepreneurial management
o Codified & tacit know-how used o Visionary entrepreneurial leaders
o Good administration o Proactive constructed crises?
o Goal identification aided by
constructed crises
ORDINARY DYNAMIC
36
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SPECIAL ELEMENTS OF STRONG ORDINARY & DYNAMIC
CAPABILTIES ARE BOTH EVIDENT AT SAMSUNG
37. 37
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VERTICAL INTEGRATION ASSISTS
DYNAMIC CAPABILITIES
– BUT ONLY IF COMPANIES FOLLOW A
RUTHLESS CO-OPETITION MODEL.
SAMSUNGTAKEAWAY
39. FromOrdinarytoDynamicCapabilitiesinAutos
39
ORDINARY: The operations portion of the automobile business has been
thoroughly optimized over many decades, doesn’t vary much from one
automobile company to another, and can be managed with a focus on
repetitive process. It requires little in the way of creativity, vision or
imagination. Almost all car companies do this very well, and there is little or
no competitive advantage to be gained by “trying even harder” in
procurement, manufacturing or wholesale
DYNAMIC: Where the real work of making a car company successful
suddenly turns complex, and where the winners are separated from the
losers, is in the long-cycle product development process, where short-term
day-to-day metrics and the tabulation of results are meaningless.
-Bob Lutz, former vice chairman at General Motors, Wall Street Journal, June 11, 2011
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41. Autoindustrycorecapabilitiesaretransforming
fromhardwaretosoftwareandservices…
“The global auto industry thinks it sees its future, and it
will require a transformation without precedent in
business history.”
The auto industry “has to turn itself into a nimble
provider of software and services.”
41
- M. Colias,T. Higgins, andW. Boston, “WillTech Leave Detroit in the Dust?,”
TheWall Street Journal,October 20, 2018
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42. INCUMBENT ADVANTAGES:
• Hardware providers and system integrators with unparalleled expertise
• Regulatory management strength
• Ability to build custom, connected cars at scale – can be the backbone of
MaaS offering
IncumbentAutoIndustry--Capabilitiesinventoryfor
thecomingdisruption
INCUMBENT CHALLENGES:
• Shaping software ecosystems
• Partnerships & Ecosystem Management
• Calibrated investment culture. Limited budgets for breakout initiatives
• ‘Not built here’ syndrome.
• Capital-draining business of “creating million of cars each year,” “constraints,”
“not faced by tech rivals” (WSJ, October 20, 2018)
42
Critical Capability
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43. Partnerships&Ecosystemmanagement--shouldbeacore
DynamicCapability
“Obviously, every
company would like to
do everything by
themselves...
except that we can’t,”
-- Carlos Ghosn, chief of
the Renault-Nissan-
Mitsubishi Alliance, WSJ,
October 20, 2018
43
Mobility as a Service
Volkswagen & Gett: In 2016, Volkswagen invested $300M in the Tel-Aviv-based ride-hailing
start-up.
General Motors & Lyft: In 2016, GM invested $500M in Lyft.
Honda & Grab: In 2016, Honda made an undisclosed investment in the Southeast Asian
ride-hailing firm.
Toyota & Grab: In June 2018, Toyota said it will invest $1B in the firm.
Autonomous Driving
Fiat Chrysler & Waymo: In 2016, Fiat Chrysler partnered with Alphabet’s driverless car unit;
the car maker is providing custom minivans for tests of Waymo’s autonomous ride-hailing
service.
Volvo & Uber: in 2017, Uber agreed to buy self-driving Volvos for its ride-hailing network
when the technology is product-ready.
Toyota & Uber: In August 2018, Toyota said it would invest $500M in Uber as part of an
agreement to co-develop autonomous cars.
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47. THE FUNDAMENTALTRANSFORMATION CONUNDRUM:
How do you change the Organizational DNA to respond to
multiple paradigm shifts in the automotive industry?
47
Do You Change the
Organization from Within?
-- e.g. Implement principles of a
Lean Startup Organization
(through systematic change in
leadership, culture and operating
rhythm )
Do You Change the
Organization from Without?
-- e.g. Acquire and Build a
Skunkworks
(and let this entity transform the
core over time)
Is there a viable hybrid model of doing both? If so,
simultaneously or sequentially?
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48. 48
What Undergirds
Hyundai’s Remarkable
Development of
Dynamic Capabilities?
• Building ordinary capabilities was the
‘springboard’ to dynamic
• Linsu Kim assigns priority to the ‘state of
the knowledge’ and the ‘intensity of effort’
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50. 50
PHASES IN
HYUNDAI
MOTORS
REMARKABLE
CAPABILITY
BUILDING
From assembling a
Ford Cortina (1967)
to designing &
producing the
Elantra, Sonata,
Grandeur, Genesis,
and Equus (2018):
• Assembling (and
technology
assimilation)
• Imitation
assimilation
• Developing Korean
cars under license
• Imitation
assimilation
• Developing own
designs (innovation)
Phases 1 & 2 involved building ordinary capabilities
Phase 3 involved building dynamic capabilities on top
Phases 1 & 2 are more about competing on price; Phase 3 is about
competing on quality/design/performance (innovation)
Phase 1
Phase 2
Phase 3
~1967 - 1976
~1973 - 1994
Today
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51. 51
How Were Ordinary Capabilities, and then
Dynamic Capabilities, Built?
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o Learning by doing – assembly
for Ford Cortina
o Learning by doing – design
o Observation tours (factory and
facility)
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o Licensing & technical assistance
(Mitsubishi for gasoline engines,
transmissions, and rear axle
designs)
o Styling & design from Italdesign
o Recruiting experts from British
Leyland
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o Independent R&D centers
o Increase in hiring & training of
engineers
o Goal to develop an independent
‘state-of-the-art’ internal
combustion engine (version
launched in 1984 when Hyundai
organized a task force for
developing its own ICE)
Phase 1
Ordinary
Capabilities
~1967 - 1976
Phase 2
Ordinary
Capabilities
~1973 - 1994
Phase 3
Dynamic
Capabilities
Today
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52. CONSTRUCTED CRISIS
o Task Force set up in 1986 to build the new Hyundai engine
o Crisis constructed proactively
o Requires educating & persuading top and middle
management
o Must ‘unlearn best practices’ (deprioritize ordinary
capabilities)
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53. 53
Catalytic Factors
That Energize Hyundai
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Constructed Crisis
Visionary Leadership
Cultural Factors
Through first developing ordinary
capabilities
Absorption Capacity
To become a global leader
(Chung Ju-yung, Chairman,
Hyundai Group)
Audacious Goals
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54. CONCLUSION
o Business success today requires innovation and change and a deep
understanding of complex systems
o Dynamic capabilities is the only general framework in strategic management
which embraces systems theory
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55. 55
Dynamic Capabilities as a Workable SystemsTheory*
Note: A dashed border indicates elements that are external to the firm.
Arrows represent major influence. VRIN = Value, Rare, Imperfectly
Imitable, and Non-Substitutable.
*“Dynamic Capabilities as (Workable) Management Systems Theory,” Journal of Management and Organization (2017)
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56. ABOUT
DAVID J.TEECE
David Teece is the Tusher Professor of Global Business at the
Haas School of Business, University of California, Berkeley and
Director of the Institute for Business Innovation. He received
his BA and Master of Communication degrees at the University
of Canterbury and his Ph.D. in economics from the University of
Pennsylvania. He is also Chairman and cofounder of Berkeley
Research Group, an expert services and consulting firm
headquartered in Emeryville, California. His areas of interest
include corporate strategy, entrepreneurship, innovation,
competition policy and intellectual property.
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