Toward a prescriptive theory of dynamic capabilities: connecting strategic choice, learning, and
competition Gary P. Pisano*
The field of strategy has been studied to understand, define predict and measure how organisational
capabilities shape CA.
Frame work of article: how to identify and select capabilities to CA
1. connect each strategy to their strategy in product market
2. to search strategies among different types of capabilities that enhance investments. The key
distinguishing feature of capabilities in this framework is their degree of fungibility:
capabilities span a continuum ranging from highly general-purpose (e.g., quality
management) to highly market-specific (e.g., knowing how to manufacture an airplane
wing).
The article applies the framework to explore some unexplained features of Penrosian
diversification strategies. The article concludes by suggesting a research agenda for dynamic
capabilities.
Five forces:
As a framework, “five forces” has been remarkably successful. It is logically consistent. It can
explain a set of facts well (for instance, why, on average, airlines are much less profitable than
pharmaceutical companies). It has held up to empirical testing. It is flexible enough to handle a
broad range of strategic contexts and problems, and it could be distilled into useful analytical
tools and concepts to help practitioners make sense of the world and develop strategies.
Resource based theory:
The resource-based theory of strategy sought to explain intra-industry performance differences
with firm-specific (non-imitable) “resources”: tangible and intangible assets like skills,
capabilities, reputation, brand equity, etc.
The dynamic capabilities framework:
As per this theory firm level capabilities rooted from 3 factors:
a. Assets: path dependency logic: where firm’s future capabilities depend on current
capabilities. Assets should be broadly discussed including knowledge, technical skills,
organizational competences, etc in shaping company’s future capabilities.
, b. Processes: firms can change its assets position by investing more or by other managerial
interventions. But firms don’t have unlimited options to such changes as they are depended
on factors like governance structures, resource allocation processes, management systems,
etc. which shape organisational adaptability.so this capacity of firm for change and the
processes that underlie this capacity is called dynamic capabilities.
c. Paths: Because most capabilities are cumulative and develop over time through a series of
coordinated investments, they involve commitments to “paths,” rather than discrete
projects. A key strategic problem for firms is to identify and commit to paths for capability
creation that lead to competitive advantage. Managerial discretion in the selection of paths
—along with constraints imposed by pre-existing asset positions and processes for
reconfiguration—can lead to differences in firm capabilities.
Dynamic capabilities: (DC)
1. Both descriptive and normative approach
2. Explains Firm level differences
3. Aspire managers how to make better capability decisions
4. Choices about paths – more important for CA.
5. Choices about paths- explicitly managerial
second leg of the framework—identifying and specifying exactly what “dynamic capabilities” are and
how they contribute to a firm’s capacity to adapt to change and reconfigure their competences and
assets
Adaptability and choice are different sides of same coin. Normally DC focus on the problems of
adaptability and has ignored managerial problem of making choice.
For capabilities to be a “strategic variable,” managers must be able to influence their creation and
evolution
Evidence suggests that managerial discretion can shape an organization’s capabilities; such
discretion is by no means unlimited. Creating new capabilities is costly, time-consuming, hard to fully
predict, and ultimately bounded.
Creating capabilities is the middle zone between unbounded adaptability and history-determined
inertia (as seen through the lens of a strong path-dependence theory).
Certain capabilities may be infeasible as they may be costly to develop. on the other hand some
capabilities are so close to firms existing ones that they can be implemented at relatively low
marginal cost.
Competition occurs at two levels. One is the visible level of product market competition.in this
competition mainly strategies relating to entry strategies, positioning, and deterrence. A capabilities-
based theory of strategy should link product-level competition and capability-level competition. It
should also be congruent with the realities and complexities of the capability creation process itself.
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