By Dr Kellen Kiambati
If a major strategic change occurs, it is often triggered by the resulting financial trauma. This raises the question of whether firms can make major strategic changes whilst maintaining high levels of performance and, if so, how?
Dynamic capabilities have been advocated as means of achieving this and they can be addressed from two perspectives. First, it refers to the shifting character of the environment; second, it emphasizes the key role of strategic management in appropriately adapting, integrating, and re-configuring internal and external organizational skills, resources, and functional competences toward changing environment. The dynamic capabilities approach provides a coherent framework to integrate existing knowledge and facilitate prescription of solutions.
Competitive advantage of firms stems from dynamic capabilities rooted in high performance routines operating inside the firm, embedded in the firm’s processes, and conditioned by its history. Creating, adapting to, and exploiting change is inherently entrepreneurial. To survive and prosper under conditions of change, firms must develop the dynamic capabilities to create, extend, and modify the ways in which they operate. The capacity of an organization to create, extend, or modify its resource base is vital.
A central concern of a firm’s overall strategy and the management of its own innovations is to maintain a dynamic fit between what the firm has to offer and what the environment dictates. As such, a firm must possess the essential capabilities so as to constantly reconfigure, renew, and redeploy its resources and capabilities to better capture and exploit the changing opportunities. Resources alone are not enough to explain a firm’s competitive advantage, they need to be employed in some way in order to be useful. In reply to this critique, the dynamic capability approach has evolved, and defined as the ability to coordinate and deploy resources in order to achieve the firm’s goals.
The constantly changing circumstances to a new firm call for the constant restructuring and transformation of resources. Dynamic capabilities are now seen as the firm’s ability to integrate and change resource base to address changing environment. The role of dynamic capabilities is to impact on the firm’s extant resource base and transforms it in such a way that a new bundle or configuration of resources is created so that the firm can sustain or enhance its competitive advantage
An expanded paradigm is needed to explain how competitive advantage is gained and held. Firms resorting to resource-based strategy attempt to accumulate valuable technology assets and employ an aggressive intellectual property stance. However, winners in the global marketplace have been firms demonstrating timely responsiveness and rapid and flexible product innovation, along with the management capability to effectively coordinate and redeploy internal and external competences. Dynamic capabilities are necessary in order to meet new challenges.
Organizations and their employees need the capability to learn quickly and to build strategic assets. New strategic assets such as capability, technology, and customer feedback have to be integrated within the company. Existing strategic assets have to be transformed or reconfigured. Learning requires common codes of communication and coordinated search procedures. The organizational knowledge generated resides in new patterns of activity, in “routines,” or a new logic of organization. Collaborations and partnerships can be a source for new organizational learning, which helps firms to recognize dysfunctional routines and prevent strategic blind spots.
Similar to learning, building strategic assets is another dynamic capability. The effective and efficient internal coordination or integration of strategic assets may also determine a firm’s performance. Quality performance is driven by special organizational routines for gathering and processing information, linking customer experiences with engineering design choices, and coordinating factories and component suppliers. Increasingly, competitive advantage also requires the integration of external activities and technologies.
Entrepreneurial firms may take deliberate steps in developing strong capabilities through carefully paying attention to their firm specific foundations. For example, positioning plays an important role in developing adaptive capabilities. By involving potential customers to participate in development of the new product, collaborating with larger organizations, gaining legitimacy by being visible and reposition the organization for commercialization, managers adapt more quickly to the demanding external environment and align their internal resources to handle the challenges of commercialization.
To develop an awareness of a firm’s internal resources or lack thereof may prove to be an important managerial task in developing specific strategies for how to develop the organization. Transformation of the organization through employees, the reconfiguration of the board, being visible and networking are essential process and position foundations for how the firms respond to the market and external resources. The organization becomes visible because it makes use of the knowledge that external actors posit and integrates into the organization. Networking skills, customer orientation, building of human capital are important foundations in institutionalizing strategic capabilities to gain performance- related benefits.