People Innovation Excellence

The Dynamic Capabilities of Firms

by Deva P. Setiawan S.T., M.M. and Fany Ilyah Ramdhani Pasadjo (1901508354)

Teece and Pisano introduced an integrated various dimensions of innovation strategy into what they call the “dynamic capabilities” approach to corporate strategy, which underline the important of dynamic change and corporate learning: to be strategic, a capability must be honed to a user need, unique and difficult to replicate. Dynamic capabilities is a source of competitive advantage that emphasizes the shifting character of the environment and the key role of strategic management in appropriately adapting, integrating and re-configuring internal and external organizational skills, resources and functional competencies towards a changing environment. The strategic dimensions of the firm are its managerial and organizational processes, its present position, and the paths available to it. By managerial processes, we refer to the way things are done in the firm, or what might be referred to as its ‘routines’, or patterns of current practice and learning. By position, we refer to its current endowment of technology and intellectual property, as well as its customer base and upstream relations with suppliers. By paths, we refer to the strategic alternatives available to the firm, and the attractiveness of the opportunities which lie ahead. (Teece and Pisano in Tidd, 2015). Firms’ innovative behaviours are strongly influenced by the competencies of their managers and the ways in which their performance is judged and rewarded (and punished).
Static operational capabilities describe the ability to perform tasks in the present, while dynamic capabilities are fundamentally about enacting change in the future (Winter, 2003; Teece et al., 1997; McKague, 2011). As an innovation strategy of a company, the dynamic capability is basically to make a change in the future.
What capabilities are required by organizations to succeed in changing their institutional fields? McKague (2011) took the case of high profile project at the United Nations Development Programme (UNDP) is known as an inclusive market growth (GIM) initiative. The conclusion of the case, in a dynamic capabilities, there are two keys. First, organization is able to produce a new legitimacy and assume an interest to maintain legitimacy with stakeholders and necessitates the ability of the dynamic capabilities to understand and communicate with a different institutional organization in order to make the institutional changes that have been proposed. Second, a change in leadership in managing institutional processes more effective to build a network in the new institutional share to be promoted by institutional entrepreneurs.
Shih-Yi Chien and Ching-Han Tsai (2012) made a research to find that the dynamic capability could improve the performance of a fast-food chain store. They found it had. It was important for management to develop dynamic capabilities on the company to able re-configure their resources better and more effectively by seeing the importance of understanding customers in adapting to a changing environment.
The dynamic capabilities are important in maintaining, assessing and providing the company with ability to face the future changes.
(References are on writers)

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