The dynamic capability (henceforth DC) perspective has emerged in the last two decades as a promising attempt to untangle the complex problem of describing how firms learn to adapt their internal and external resource configurations and processes to shifting expectations and market conditions in pursuit of competitive advantage. In their original definition of the concept, Teece, Pisano, and Shuen posit:
We refer to this ability to achieve new forms of competitive advantage as ‘dynamic capabilities’ to emphasize two key aspects . . . The term ‘dynamic’ refers to the capacity to renew competences so as to achieve congruence with the changing environment . . . The term ‘capabilities’ emphasizes the role of Strategic Management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competences to match the requirements of a changing world.
(Teece, Pisano, and Shuen, 1997: 510)
The fact that the achievement of ‘new forms of competitive advantage’ and of ‘congruence with changing environment’ is premised as a constitutive component of the concept rather than as a goal in pursuit of which the ‘renewal’ is made, has created significant debate in the literature. The difference is not trivial, for at least two reasons. First, it implicitly equates change with adaptation which is clearly false. The ability of a firm to change its configuration of resource and capabilities does not necessarily generate better fit with a rapidly changing environment, since the direction of change requirements might be wrongly perceived. Second, the inclusion in the definition of the achievement of the result (competitive advantage), rather than simply the pursuit of it, generates a well-known tautology (Zollo and Winter, 2002) which makes either the notion of DC or the notion of competitive advantage redundant. Even more worryingly, it makes it impossible for scholars to study the key question ‘under what conditions does the presence of DC in firms generate competitive advantage?’: arguably one of the most interesting questions in the field of strategic management today.
Alternative formulations that avoid this problem are those proposed by Zollo and Winter:
A dynamic capability is a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness.
(Zollo and Winter, 2002: 340)
And by Helfat et al., in which the notion of performance outcomes has completely disappeared:
A dynamic capability is the capacity of an organization to purposefully create, extend or modify its resource base. The resource base of an organization includes tangible, intangible and human assets (or resources) as well as capabilities which the organization owns, controls or has access to on a preferential basis.
(Helfat et al., 2007: 4)
Moving beyond the definitional debate about the construct itself, there are several contributions about the characteristics and boundaries of the notion of DCs. In contrast to normal organizational capabilities, DCs are usually considered a higher-order phenomenon (Collis, 1994) because they build, integrate, and reconfigure existing resources and capabilities (Helfat and Peteraf, 2003). In this sense, DCs differ from ordinary capabilities since they are concerned with change, rather than with the contribution to the production or the delivery of a product or service to customers. Winter (2003) clarifies this point calling ordinary capabilities ‘zero-level capabilities’ in that they allow the firm to ‘earn a living’ by creating something valuable for a customer. Whenever the same firm triggers established patterns of actions (routines) dedicated to the identification and execution of change in the way it does so (for example, through innovation activities or reorganization processes), it would put into practice a ‘first-order’ capability, a change routine, a so-called DC. The fundamental condition for the existence of a DC, therefore, is the presence of a stable and repeatable pattern of action to address the change requirement, which (1) distinguishes the phenomenon from the execution of ad hoc problem-solving and implementation of a change process, and (2) makes DCs a relatively rare phenomenon compared to the ubiquitous ad hoc problem solving and change execution processes that any organization produces at any given time, across locations, and within all of its functional activities.
From a temporal standpoint, DCs are viewed as stable patterns of action that potentially build a string of temporary advantages by adding, integrating, and reconfiguring resources, which amount to sustained advantage once the entire pattern is taken into account (Blyler and Coff, 2003). DCs are therefore considered to be in the foreground of specific business processes, such as corporate acquisitions, resource allocations, reorganizations, and the management of product and (even more) process innovation (Eisenhardt and Martin, 2000: 1107, Zollo and Winter, 2002) whenever these business processes are carried out through the triggering and execution of change routines, rather than (solely) through ad hoc problem-driven search and solution implementation activities.
For the purpose of the present chapter, it is important to note that all these (and other) conceptualizations of DCs have in common the often implicit assumption that the object upon which DCs produce their effects is fundamentally of a behavioral nature: that is a pattern of action, a process, an operating routine, or any form of group activity characterized by some level of stability and predictability. This approach misses the fundamental aspect that organizational capabilities specific to managing change can hardly be reduced to the management of behavioral change.
Consider the example of the management of organizational change in the context of post-acquisition integration processes, which some organizations (a small minority in most industries and countries) have learned to handle through specialized change routines, therefore by exercising DCs. Can the ability to manage the integration of the acquired unit be reduced to the conversion of the information systems or the replication of reporting and control processes? Clearly not. The (dynamic) capability to manage post-acquisition integration change needs to include, for example, the capacity to understand and align emotional conditions felt by the personnel of the acquired unit with those of the acquirer (Huy, 1999). Even more profoundly, the capable acquirer will have developed processes to assess the cultural traits of the acquired unit, decide whether and what needs to be aligned with potentially conflicting traits present in the acquiring organization, and design appropriate types of interventions to achieve the desired type and level of alignment. A third, related aspect of fundamental importance for the success of most types of post-acquisition change processes relates to the use of motivational levers to create the necessary emotional and identity condition that can produce the degree and type of behavioral alignment that is aimed for. Again, some acquiring firms (not many) undergo these motivational change processes (Gottschalg and Zollo, 2007) by triggering specific patterns of action that aim to facilitate, for instance, the en masse socialization of the employees of the acquired firm to the ‘way things are done’ in the acquiring one.
These non-behavioral objects of change are not included in the original notion of dynamic capabilities, despite their obvious relevance in many (if not most) types of organizational change processes. They start, instead, being considered within the notions of ‘intangible resources’ and ‘human assets’ mentioned in the consensus definition proposed by Helfat et al. (2007: 4). This definition goes a long way towards the recognition of the type of ‘objects’ of change that we refer to in the post-acquisition integration example. It does not highlight, however, the differences between the received notion of dynamic capabilities aimed at behavioral adjustments and the notion of DCs required to adapt the more tacit and subtle aspect of human interactions (motivation, emotions, and identity, in particular) to environmental or contextual requirements. For example, one can easily consider the case of an acquiring company that has developed excellent competencies in the handling of change processes related to its procedures, systems, and operating routines in general. However, that same acquiring firm might be particularly bad at handling the change processes related to the more subtle human aspects, such as motivation, identification, and emotional status. Vice versa, a competitor might have much more developed procedures for the human interaction side of things in a post-acquisition context and be a lot less competent in handling change at the system and operating routine level. As noted by Vince and Gabriel:
the interplay between emotions and politics in organizations concerns how organizations function as emotional places (not how individuals within organizations can ‘have’ or ‘manage’ emotion); it concerns how decisions or actions are shaped, subverted, and/or transformed by emotions; and it concerns how emotions become embedded in cultural and political practices that determine the ‘way we do things here.’
(Vince and Gabriel, Chapter 15 in this volume)
The distinction between these two aspects of the notion of dynamic capabilities is necessary, we argue, if we want to make progress on some of the key theoretical questions related to dynamic capabilities. In the quest to identify and assess the role played by potential antecedents to the development of DCs, for example, it seems sensible to expect that organizational characteristics conducive of the development of DCs aimed at changes in operating routines might be quite different from the factors explaining how firms learn to adapt motivations, emotions, and identity traits. Ditto for the consequences produced by the deployment of DCs. Depending on the type of task at hand and the type of performance objective aimed at, the impact of a firm’s capabilities to adapt operating routines, as opposed to those specific to the adaptation of emotional/motivational states might be more or less relevant for both a model of organizational change and for models of organizational performance.