DYNAMIC CAPABILITIES: TOWARDS AN ORGANIZING FRAMEWORKMOHAMUD M AND SARPONG D, JOURNAL OF STRATEGY AND MANAGEMENT, 2016

ABSTRACTPurpose – The purpose of this paper is to stimulate, shape and extend current discourse on the relevance of dynamic capabilities on firm competitiveness Design/methodology/approach –We delineate current debates on dynamic capabilities and synthesize them to develop some propositions and a heuristic framework to guide future research on dynamic capabilities as a strategic management construct.Findings –The theoretical and methodological complexities involved in mapping the routines and processes’ underpinning dynamic capabilities has led to conceptual discrepancies, which in turn impede our understanding of the relevance and contribution of dynamic capabilities to competitiveness. Measuring dynamic capabilities remains the biggest barrier to progress in developing directions for theory and research in this area.Practical implications- Stimulating and shaping the current discourse on the relevance of dynamic capabilities on competitiveness, our proposed integrated framework as a heuristic device can be to gauge the a firm’s dynamic capabilities vis à vis their competitors.Originality/value – We propose a framework built around the inter-relationships of capabilities and hierarchies of capabilities to extend our understanding of how dynamic capabilities can be developed relative to a firm’s ability and embedded context.Keywords – Dynamic capabilities, learning, hierarchies, rigiditiesPaper type – Conceptual Paper

IntroductionFrequently referred to as the strategic (re) configuration of a firm's competencies

generated from its resources in response to changing the business environment, the

concept of dynamic capabilities have come to dominate contemporary management

discourse (Ambrosini and Bowman, 2009; Teece, Pisano and Shuen, 1997; Berreto,

2010). While the existing literature contributes to our understanding of how firms

develop dynamic capabilities, contradictory conceptualizations of what constitutes

dynamic capabilities, coupled with subtle contradictions in definition and the

measurement of the concept (Easterby-Smith and Prieto, 2009; Zahra, et al. 2006)

means an explicit and definitive understanding of the concept and its influence on

competitiveness is yet to emerge. Nevertheless, little effort has been offered in

synthesizing the different conceptualizations to move research on dynamic capabilities

to newer pastures. The literature remains sporadic and conceptually fragmented. This

we argue has the potential to obfuscate the little we already know about the subject.

Our objective in this paper, therefore, is to provide a comprehensive review of the

existing literature on dynamic capabilities. Our main agenda is to stimulate and shape

the current discourse on the relevance of dynamic capabilities on competitiveness. This

we believe would enable researchers to develop a holistic understanding of the how

dynamic capabilities could be developed, relative to a firm’s ability and embedded

context, and permit a careful analysis of its evolution in organizing. Our framework is

built around the inter-relationships of capabilities and what we call the hierarchies of

capabilities to extend our understanding of how firms can develop this capability. We go

further in developing hypotheses and propose some future directions for theory and

research in this area.

The dynamic capability conceptA grasp of the way ideas such as resources, competencies, and capabilities are used in

strategic management research is imperative in understanding the convoluted concept

of dynamic capabilities. Resources are all the possessions owned by the firm and may

include the physical (such as factories, land, equipment), intellectual (patents,

copyrights, logos etc.), and employees (Collis and Montgomery, 2008). In this regard, a

capability can be conceptualised as the firm’s capacity to deploy its resources effectively

(Drnevich and Kriauciunas, 2011). A competence, on the other hand, is the ability to do

something successfully and/or efficiently (Drnevich and Kriauciunas, 2011). Capabilities

and competencies are generally used synonymously in the strategic management

literature. Core competencies, as defined by Teece, Pisano and Shuen (1997), are those

competencies that define a business relative to their competitors; what makes them

different from other firms. A range of assets, procedures and processes may enhance

these core competencies.

While a re-recurrent theme of recent theory increasingly argue that the

(re)configuration of a firm's competencies is what leads to dynamic capabilities

(Ambrosini and Bowman, 2009; Lepak et al., 2007), the subject of dynamic capabilities

remains popular yet divisive taking into consideration the plethora of definitions that

has been put forward to extend our understanding. Di Stefano, Peteraf and Verona

(2010), using co-citation analysis, for example, found both evidence of commonalities as

well as polarizing differences when it comes to dynamic capabilities research. Others

maintain that this should be expected from such a relatively new construct that is trying

to frame complex phenomena (Helfat and Peteraf, 2009). We provide an overview of

some of the definitions in Table1.0.

Table 1: Some definitions of dynamic capabilities

Author Year DefinitionTeece, et al 1997 The firm’s ability to integrate, build and reconfigure internal

and external competences to address rapidly changing environments.

Helfat 1997 The subset of competences/capabilities which allows the firm to create new products and processes and respond to changing market circumstances

Eisenhardt and Martin

2000 (Dynamic capabilities) thus are the organisational and strategic routines by which firms achieve new resources configurations as markets emerge, collide, split, evolve and die.

Griffith and Harvey

2001 A global (dynamic capability) is the creation of difficult-to-imitate combinations of resources, including effective coordination of inter-organisational relationships, on a global basis that provide a firm competitive advantage.

Zollo and Winter

2002 A (dynamic capability) is a learned and stable pattern of collective activity through which the organisation systematically generates and modifies its operating routines in pursuit of improved effectiveness

Zahra and George

2002 (Dynamic capabilities) are essentially change-oriented capabilities that help firms redeploy and reconfigure their resource base to meet evolving customer demands and competitor strategies

Lee, Lee and Rho

2002 A source of sustainable advantage in Schumpeterian regimes of rapid change

Winter 2003 They are those operate to extend, modify and create ordinary (substantive) capabilities.

Macpherson, et al

2004 The ability of managers to create innovative responses to a changing business environment

Nielsen 2006 An extension of the RBV where the firm is conceived as a collection of resources e.g. technologies, skills, knowledge-based resources.

Zahra, et al 2006 The processes to reconfigure a firm’s resources and operational routines in the manner envisioned and deemed appropriate by its principle decision maker

Teece 2007 Difficult-to-replicate enterprise capabilities required to adopt to changing customer and technological opportunities

Wang and Ahmed

2007 A firm’s behavioural orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities, and upgrade and reconstruct its core capabilities in response

Helfat, et al 2007 The capacity of an organization to purposefully create, extend or modify its resource base

Ambrosini, et al

2009 There are three levels of dynamic capabilities related to a manager’s perceptions of environmental dynamism. At the first level we find incremental (dynamic capabilities)…, at the second level are renewing (dynamic capabilities)…, at the third level are regenerative (dynamic capabilities)

A dynamic capability differs because it refers to the organisational

routines/processes instead of the resources themselves (Teece, et al 1997). Whereas

resources are a static stock, dynamic capabilities are considered a flow that affects

resources (Romme, et al., 2010). Teece et al’s (1997) seminal work coined dynamic

capabilities as the firm’s ability to integrate, build and reconfigure internal and external

competences to address rapidly changing environments.

Scholars have attempted to bring to bear the essence of the construct by depicting its

position to other capabilities. These hierarchical typologies aid in understanding the

level of complexity intended by their curators. Winter (2003) divided capabilities into

three different levels. First, he identified the ‘zero-level' capabilities referring to

ordinary day-to-day functions of the firm. At this level, the firm has the capabilities to

compete and achieve parity with competitors. The second level was referred to by

Winter (2003) as ‘first-level’ capabilities, which modify, change and reconfigure ‘zero-

level’ capabilities. Ambrosini, Bowman and Collier (2009) add that this level of

capability augments the resource base to refresh, renew and adapt capabilities. At the

third level, Winter (2003) adds the notion of ‘higher-level’ capabilities that change the

way the firm changes its capabilities. Table 2.0 provides an overview of selected papers

that have sought to develop typologies to extend our understanding on the complexity of

capabilities in practice.

Table 2 hierarchical typologies of dynamic capabilities

Dynamic capabilities are Winter’s (2003) first-level capabilities since they create

ordinary capabilities. This hierarchical element of dynamic capabilities is denoted in the

majority of definitions explicitly, such as Helfat (1997), or implicitly, to the

organisational level. The value of developing this hierarchical system is that it alludes to

varying degrees of complexity. This complexity highlights the unsettled nature of the

relatively new construct of dynamic capabilities and is apparent in the contrasting

definitions offered in the literature (figure 2). There is disagreement as to what this

concept is called; Teece et al (1997) described it as ‘an ability’; Eisendhardt and Martin

(2000) refer to dynamic capabilities as ‘routines’; Wang and Ahmed (2007) regard them

as ‘behavioural orientation’. These differences stem from the academics’ perception of

the construct. For instance, Teece et al (1997) view the external environment as an

essential in understanding the concept by referring to dynamic capabilities as those

organizing capabilities that address the volatility in the market. In contrast, Wang et al

(2007) in response to the fleeting external environment argue that the purpose of

dynamic capabilities is to upgrade core-capabilities, whereas Zollo and Winter (2002)

disregard the external environment altogether. Synthesising the three competing

perspectives , Teece (2007) codified dynamic capabilities as ‘sensing’, ‘seizing’ and

‘reconfiguring’ organizational capabilities in dynamic environments.

Another example is the notion and conceptualization of change in the definitions.

For example, Teece et al (1997) employ words such as ‘integrate, build and reconfigure’

whereas Winter (2003) uses the words ‘extend, modify and create’ and Zahra et al

(2006) adopt only the word ‘reconfigure’. All of these words are used to describe a type

of change but relate to a specific means and ends as in the case of Tsekouras et al

(2010) when they examined the relationship between innovation and dynamic

capabilities. Indeed, it is conceptual differences such as these that lead to contrasting

definitions. Thus far, it can be understood that there are key similarities regarding

dynamic capabilities and their relation to other capabilities. Therefore, it may be

possible to deduce that: -

Proposition 1: Dynamic capabilities are the most complex form of

capabilities of a firm.

However, deducing a clear definition of dynamic capabilities cannot be made without

first pinning down the key conceptualizations. This literature review seeks to

understand what the root causes of the differences are; fundamental to any construct is

the understanding of its origin and purpose, which are the topics of the first two

themes.

Sources of dynamic capabilitiesThe resource-based view was first explicitly stated by Barney (1991) and later

developed by others such as Peteraf (1993) and Helfat and Peteraf (2003). The

resource-based view essentially focuses on the physical possessions of the firm and how

they can be leveraged to attain a sustainable competitive advantage. Barney (1991)

specifies four conditions for firms to achieve sustainable competitive advantage, namely

valuable, rare, inimitable and non-substitutable (VRIN). Definitions of dynamic

capabilities have components of these conditions (Eisenhardt and Martin, 2000; Griffith

and Harvey, 2001; Teece, 2007; Berreto, 2010). The resource-based view also led to the

knowledge-based view described as the body or social context in which knowledge will

be developed, sustained and protected (Grant, 1996). This construct has grown and has

made numerous contributions to organisational learning (Lopez, 2005). However, both

the resource-based view and knowledge-based view are static analyses of the resource

portfolio; both being unable to adequately respond to an external environment that is

changing exponentially (Priem and Butler, 2001; Arend and Levesque, 2010). Dynamic

capabilities gain merit because the resource-based view is a static construct. Teece et al

(1997) argue that their construct is designed to achieve congruence with the changing

external environment. The key distinction between the resource-based view and

dynamic capabilities is that the resource-based view is concerned with locating the

source of profitability (Bowman and Ambrosini, 2003) in the firm where dynamic

capabilities are built and cannot be bought (Makadok, 2001). There is a consensus that

learning is a fundamental ingredient to dynamic capabilities (Cavusgil et al, 2007;

Eisenhardt and Martin, 2000; Easterby-Smith and Prieto, 2008; Johansen, 2007).

However, authors differ in the role learning plays within the construct. Teece et al

(1997) define learning as the process by which repetition and experimentation enable

tasks to be better performed. Zott (2003) identifies learning of resource deployment as

a performance-relevant attribute of dynamic capabilities. They both, in other words, see

learning as a component of the construct. Further, some authors identify learning as the

catalyst that guides the evolution of dynamic capabilities (Winter, 2003; Eisenhardt &

Martin, 2000).

The types of learning that take place have also been discussed in the literature.

Teece, et al (1997) explain the difficulty in analysing tacit knowledge. It is not written

down nor is it captured outside the individual and hence has been identified as

problematic to dynamic capabilities since it limits the ability to codify and then

systematically apply at the firm level (Usdiken, Kieser 2004). Teece (2007) adds that

intangible assets are critical to the generation of new ideas and recommends incentive

structures that enable their development. Zollo & Winter (2002) posit that the origin of

dynamic capabilities is knowledge. Their argument is that through the enjoinment of

experience and codification induces dynamic capabilities. Scholars have also discussed

how learning is accomplished in order to underpin and develop dynamic capabilities.

Teece et al (1997) assert that learning may be confined to trial and error. While

Eisenhardt & Martin (2000) agree, they also add that learning comes from both failure

and success. Davidsson (2003) explains when failure is corrosive – catalyst venture and

failed ventures. Catalyst ventures fail because they were outsmarted by either followers

or incumbents. The latter represents failed efforts due to low financial success and

hence did not have any followers or incumbents.

Zollo & Winter (2002) argue that a dynamic capability is a learned and stable

pattern of activity. Their statement needs to be clarified since this could lead to

tautology of the definition. Eisenhardt & Martin (2000) acknowledge that dynamic

capabilities may be seen as vague for its ‘routines that learn routines’ type definitions.

Instead, they propose that there are learning mechanisms that guide the evolution of

dynamic capabilities, repetitive but compounding. Nonetheless, authors appear to

regard it as the root component of dynamic capabilities. Zollo & Winter (2002) go so far

as to say that dynamic capabilities arise from learning and are the firm’s systematic

method of modifying operating routines. Easterby-Smith & Prieto (2008) argue that the

learning processes are a common theme underlying both dynamic capabilities and

knowledge management. Bingham et al (2015), by using dynamic capabilities over a 20

year data set, underline the use of learning by developing and emergent framework

they describe as ‘concurrent learning’. This further emphasises they root of learning

within this construct, not only in isolation but also as part of enabling success of a firm

on a longitudinal study.

However, learning (once captured as knowledge) may also expire. It may become

irrelevant in improving the firm in general or even go so far as to hinder progress, as

core capabilities may turn into core rigidities over time (Leonard-Barton, 1993). A firm’s

capabilities that were once producing rents for the firm may later actually become a

disability. This may be countered by regular maintenance and upgrades. Winter (2003)

states that successful maintenance of a skill or routine typically requires frequent

exercise to avoid the ‘rustiness problem’. Therefore,

Proposition 2: Learning is the origin of dynamic capabilities and must be continuously updated.

Our argument here is that dynamic capabilities are rooted in the resource-based

view and that learning is a key ingredient or perhaps even the source of dynamic

capabilities. Closely related, the next section will discuss the purpose of dynamic

capabilities.

Purpose of dynamic capabilities

This section will trace the debate concerning the purpose of dynamic capabilities. The

central argument here is whether dynamic capabilities achieve a sustainable

competitive advantage or operational efficiency. The consequential effects and

implications of either choice are deliberated. Strategic management was previously

dominated by how a firm would gain a competitive position in relation to their

competitors by exposing the imperfections of others in a given sector (Lopez, 2005). The

shift has now focused on an intra-organisational perspective which assesses the firm's

own capabilities, as well as external factors, in competing (Muller and Turner, 2010;

Priem and Butler, 2001). There has been abundant debate around the purpose of

dynamic capabilities. Teece, et al (1997) not only believes that dynamic capabilities’

purpose is to achieve sustainable competitive advantage but add a caveat – that it can

only be achieved if the collection of routines, skills, and assets are difficult-to-imitate.

This echoes' and simplifies Barney’s (1991) definition of sustainable competitive

advantage; implementing a value creating the strategy not simultaneously implemented

by any current or potential competitors and when these other firms are unable to

duplicate the benefits of this strategy. In contrast, Eisenhardt & Martin’s (2000) view is

that, because dynamic capabilities may be transferable to other firms, their value for

competitive advantage is in the configuration they create and not necessarily the

dynamic capability itself. Figure 3 delineates some of the major conceptualizations of

the position of dynamic capabilities in firms’ organizing processes.

Figure 1 Position of dynamic capabilities in firms’ organizing processes

They evaluate dynamic capabilities are a necessary but not sufficient condition for

competitive advantage. Firms may use them in idiosyncratic ways in developing and

employing them and hence this variability gives firms a basis to pursue different types

of competitive advantage (Schilke, 2013; Zahra & George, 2002). There is also the

consequential effect linking dynamic capabilities with sustainable competitive

advantage. Priem and Butler (2001) assert that dynamic capabilities are only identified

where there is a sustained competitive advantage. Thus, to say a firm has a sustainable

competitive advantage is akin to saying a firm has a dynamic capability (Arend and

Bromiley, 2009). Winter (2003) proposed that clarity is served by breaking the link

between dynamic capabilities and competitive advantage. Helfat, et al (2007) also called

for the decoupling of dynamic capabilities and sustainable competitive advantage. This

post-success identification is problematic as it infers dynamic capabilities are a

construct only for successful firms. It may even be proposed that dynamic capabilities

do not guarantee success or survival (Zahra, et al, 2006).

Furthermore, there has been a shift in David Teece’s hypothesis when he argued

in Teece (2007) that “the ambition of the dynamic capability framework is to explain the

sources of enterprise-level of competitive advantage over time." Teece (2007) went

further to observe that "dynamic capabilities undergird the sustainability of enterprise-

level competitive advantage". These statements imply the separation of dynamic

capabilities and sustainable competitive advantage but do not divorce them completely.

From this perspective, Pitelis and Teece (2009) assert that dynamic capabilities are

important for the effectuation of sustainable competitive advantage, reinforcing the

views advanced by Eisenhart and Martin (2000), Winter (2003) and of course, Rindova

and Kotha (2001). To this end, it seems there is a move away from determining that

dynamic capabilities yield a sustainable competitive advantage. If this is the case, it is

not clear exactly how or what benefits this construct may yield to a firm. The arguments

between sustainable competitive advantage and operational efficiency have been made

clear by Porter (1996). To allow a division of dynamic capabilities and sustainable

competitive advantage, there needs to be recognition that there are some capabilities

that do yield the firm a sustainable competitive advantage. For example, a firm may be

known for its excellence in the machinery of a particular component or the design of

certain products or services. We propose that these are core capabilities and not

dynamic capabilities. This then gives permission to the dynamic capabilities construct to

play the highest form of support towards core-capabilities without being constrained to

the consequential effects of being linked with sustainable competitive advantage and all

it entails. Thus,

Proposition 3: The purpose of dynamic capabilities is to enshroud and support core capabilities.

This section has described the argument surrounding the purpose of dynamic

capabilities and its implications. The next section takes a broader view by delving into

the relationship of the construct with its environment.

The context of dynamic capabilities

This section discusses the external environmental factors of dynamic capabilities. It

begins with the notion of change, its position within the construct and the opportunity

cost. This is followed by a discussion of the relationship between dynamic capabilities

and the volatility of the market. This section is concluded by discussing who the

enablers of dynamic capabilities are and the role they play. Change is mentioned almost

synonymously with dynamic capabilities throughout the literature (Nedzinskas et al,

2013). Authors have mentioned different types of change in both defining and

attributing to the construct. Schreyögg and Kliesch-Eberl, (2007), after pointing out the

inherent ambiguities prevalent to organizations, identify three broad approaches: 1)

radical dynamization, 2) integrative, and 3) the innovation routine. The first approach is

our subject of discussion here. Radical dynamization postulates that dynamic

capabilities have mastered the rhythm and flow of highly changing environments. An

example of this could be the work done by Sune and Gibb (2015) who demonstrate how

a firm (Spanair) leveraged its resources in a high turbulence environment to develop

hierarchical capabilities in transferring, integrating and shredding. In other words, the

firm was in tune with the rhythm of the changing environment better than other firms in

its industry. This is similar to Winter (2003) who specifies that dynamic capabilities are

different to ordinary capabilities because they are concerned with change. Teece (2007)

states that dynamic capabilities are fundamental to an enterprise to create, adjust,

hone, and even replace business models. Thus, it is clear that change is part of dynamic

capabilities, but is it an exclusive attribute? Many scholars do not believe this to be the

case (Winter, 2003; Helfat and Peteraf, 2003; Arend and Bromiley, 2009). Helfat and

Peteraf (2003) assert that all capabilities have the potential to both accommodate and

enact change without the intervention of dynamic capabilities. Arend and Bromiley

(2009), remark that if a firm does not change it does not mean that they lack the

capacity to change. The argument is that the presence or absence of change does not

demonstrate or rule out that a firm as a dynamic capability and, therefore, cannot be an

exclusive attribute.

Furthermore, the academic community has also discussed the notion of whether

dynamic capabilities exist only in volatile environments or whether they exist regardless

of the nature of the external environment. Zahra, et al (2006) and others acknowledge

this is a source of confusion. Many authors agree with Teece, et al (1997) who defines

that dynamic markets function in rapidly changing environments (Augier and Teece,

2007; Eisenhardt and Martin, 2000; Helfat, 1997; Macpherson et al, 2004; Teece, 2007).

The notion here is that dynamic capabilities are like fish out of the water, if they are not

in volatile environments – they do not belong there. Zahra, et al (2006), without

excluding their existence in non-volatile environments, argue that the potential gain

from dynamic capabilities is greater in dynamic environments. Helfat and Peteraf

(2015) go further and explore the role of managerial cognition and its importance of the

implementation of dynamic capabilities. They identify particular types of cognitive

capabilities that are necessary for dynamic capabilities to function. This suggests a

greater depth of understanding from managers that previously thought.

Arend and Bromiley (2009) critique the linking of a volatile environment in defining

dynamic capabilities. They argue that if two identical firms display identical behaviours

but in different environments (one in a stable industry and another in a volatile

industry) then the case for attributing one with dynamic capabilities and the other

without seems illogical. The perception is that anything that refers to change may be

considered a dynamic capability. Thus,

Proposition 4: There is a correlation between the volatility of a firm’s external market and the development of the firm’s dynamic capability.

Moreover, consideration must be taken into account as to the cost involved in changing

capabilities. Teece et al (1997) warn of the cost attached to implementing dynamic

capabilities and, as a result firms need to develop processes to minimize low pay-off

change. Winter (2003) agrees and adds that attempting too much change, perhaps

simply to exercise dynamic capabilities, may outweigh the competitive value from the

novelty achieved. However, Teece (2007) asserts that it is possible to carry out

modulated change if the ecosystem of the firm is stable. They recognise that firms tend

to prefer more incremental competency-enhancing improvements rather than radical

competency-destroying innovations. This may be closely linked with the perception of

the decision makers. Existing research has stressed that top management is frequently

involved in the successful implementation of dynamic capabilities (Kor and Mesko,

2013). From this perspective, Katkalo, Pitelis and Teece (2010) have argued that

dynamic capabilities aid the decision-making process whilst Pandza and Thorpe (2009)

give importance to the role managerial agency plays in learning, the knowledge

progression of the firm and actualising dynamic capabilities. Zahra, et al (2006)

considers having a decision maker in carrying out dynamic capabilities. More explicitly,

Teece (2015), evaluates the necessity of the ‘entrepreneurial manager’ in the dynamic

capabilities. Regnér (2008) considers top management as the enablers of dynamic

capabilities. Perhaps more intuitively, Rindova and Kotha (2001) argue that top

management may serve as an intermediary between the organisational actors who learn

and the organisational structures and routines. This leads to,

Proposition 5: The degree of investment in dynamic capabilities is based on the ability of top management to perceive the development of their internal capabilities relative to the external environment.

In the following section, we focus on the methodologies frequently employed in

theorizing dynamic capabilities and most importantly the difficulty in overcoming the

theoretical and empirical specifications to measure the construct.

Methodological challenges in theorizing dynamic capabilities

The concept of dynamic capabilities has attracted a lot of criticism for being empirically

difficult to measure and possibly ‘unpack’ its underlying operational processes and

relationship with the firm at large (Easterby-Smith et al, 2009; Di Stefano et al, 2010).

In response, Pablo et al (2007) while affirming that the dynamic capabilities framework

is building momentum, concede that empirical studies in the field remain relatively rare.

Zahra et al (2006) also state that academics have not given due attention to the process

of how these capabilities develop. Other scholars argue that this should be expected

from such a relatively new construct that is trying to frame complex phenomena (Helfat

and Peteraf, 2009). Ambrosini and Bowman (2009) suggest that there is no need for

surprise since traditionally researchers would begin with a theory. They then develop

hypotheses or a proposition, which leads to it being empirically tested. This should

result in the managerial prescription if proven true. For Arend and Bromiley (2009), the

construct has been employed in relatively few empirical studies. Therefore, there should

be no surprise that empirical support for dynamic capabilities is limited because work in

this area did not start until Teece et al (1997).

Most studies discuss overarching, broad firm-level processes and do not indulge

in the detail of the intricate micro-level workings. For example, Narayanan, Colwell and

Douglas (2009)use a case study of a pharmaceutical company to deduce two dynamic

capabilities. Newey and Zahra (2009) use a case study regarding the development of

drugs based on two pharmaceutical firms. Bruni and Verona (2009) investigated the

role dynamic marketing capabilities by interviewing six pharmaceutical firms.

Unfortunately, these studies do not affirm or negate conceptual holes in the construct

but carry on the study regardless. This loose use of dynamic capabilities is the focus of

Guidici and Reinmoeller(2012), who use Lane, Koka and Pathak’s (2006) rigorous

methodology of analysing the usage of a research community absorptive capacity

construct and applied it to dynamic capabilities. This process, coined as ‘reification’

(Lane et al, 2006) is designed to specify the assumptions that underlie the construct and

treat it like a general-purpose solution to an increasing range of problems. Their

findings, whilst acknowledging a general lack of cohesion, compelled them to advise

that continuous theoretical cherry-picking and mixing sub-elements from competing

definitions will be the surest route to the construct’s collapse” (Giudici and Reinmoeller,

2012). Arend and Bromiley (2009) state that there is a lack of consensus on how to

measure dynamic capabilities alluding to the wide range of proxies. For example,

Macher and Mowery (2009) studied the yield and cycle time of manufacturers of

semiconductors over a six-year period. In this longitudinal study, they used processes

they considered affected the dynamic capability of new process development as proxies.

This included intra-team diversity, IT-practices and database analysis. This prompts the

question, how can these proxies be applicable in another context?

Alternatively, McKelvie and Davidsson (2009), argue that quantitative methods are a

viable way of measuring dynamic capabilities. Through a series of structured

questionnaires sent to executives, they discuss the origins and development of the

construct. In contrast, Ambrosini and Bowerman (2009) encourage increasing the

number of qualitative field investigations to tackle notions that the construct is

intractable and abstract (Danneels, 2008). Perhaps Lockett and Thompson’s (2001) may

be a suitable compromise. They suggest that there may be a case for sacrificing some

generalizability for a more qualitative approach to detail.

Towards an organizing framework

Based on our review of the literature, we propose a heuristic framework that could

extend our understanding of how dynamic capabilities can be developed relative to a

firm’s ability and embedded context. Our framework (as shown in figure 4) is organized

around the hierarchy of capabilities and draws on four distinct levels. It is important to

note that there is a staggered overlap between distinct capabilities that accommodates

the development of idiosyncratic capabilities from one level to another. These levels

may be better understood as categories that have specific criteria in order for ‘a

capability’ to qualify for that rank. This separation, we believe will allow firms to have

idiosyncratic capabilities whilst emphasizing the commonalities between them. Thus,

the more sophisticated the capability, the greater the level of embedded learning.

Figure 2 Proposed frameworks -The relationship between capabilities

The first category is daily capabilities (ordinary capabilities) in which a firm carries out

those tasks that enable the firm to perform its functional tasks. The second is the

operational efficiency capability in which a firm attempts to become more effective in

what it does by attempting to do daily capabilities in ways that are more effective. The

third category is reactive capabilities where a firm encounters problems and

unexpected events and is forced to deal with them. The firm overcomes these obstacles

and gains specific firm-based experiential knowledge; change is forced on the firm by

unforeseen activities. The fourth category is dynamic capabilities in which a firm's

ingrained knowledge of its previous three levels of capabilities permits it to make

changes that are in its favour in an aggressive manner. This category qualifying

attribute is that capabilities are the instigators of change and not necessarily the

market.

Perhaps more practically, our framework enables firms to measure their level of

capability to some degree. For instance, they may take into consideration cost, growth

and the external environment. Firms need to understand that these capabilities come

with costs, that if a firm does not understand its environment or growth plan, that could

overweigh the benefits of having these capabilities. Hence, capabilities act as a shroud

to the firm's core-competence (i.e. the product or service) by keeping it running, making

it more efficient and building resilience against unforeseen problems. More specifically,

dynamic capabilities act as a defence against competitive market forces and revitalise

current capabilities. Our descriptive framework is also somehow predictive too as it

proposes that a firm may measure the level of learning they are at, compared to the

growth they have reached. This can then be contrasted with the level of investment the

firm has made against the volatility of the market demonstrating the level of progress

that needs to be made to run at the optimum capability from point A to B.

Discussion and conclusions

Research in strategic management continues to apply the dynamic capabilities

framework even though their aforementioned issues are yet to be resolved (Eriksson,

2011). An example of this is the examination of the drivers of franchised chains

performance (El Akremi et al, 2015). The study uses the DC construct as a lens to justify

the interrelated nature of franchised chains and say "Dynamic capabilities are chain-

specific and are developed over time through complex interactions between resources,

specifically knowledge and management expertise" (El Akremi et al, 2015). Indeed, the

authors discuss a number of things at length and use the framework just as other

empirical papers using the construct have. We merely mention this study as an example

of scholars using the construct without fully engaging with the conceptual and practical

issues still to be rectified.

Progress is being made by academics as to how dynamic capabilities relates to

other phenomena. For example Teece (2012), in the paper entitled “Dynamic

Capabilities: Routines versus Entrepreneurial Action”, assimilates the higher-level

competence of dynamic capabilities to that of acting entrepreneurially. He explicitly

calls it “enterprise-level dynamic capabilities” referring to the ability of the firm to

identify the projects with which lower-level routines will then carry out. We mention it

here to demonstrate the nature of dynamic capabilities being able to explain some

aspects of other constructs. The theme of relating the construct to other frameworks

was taken further by Wang et al (2015) who evaluated why some firms are better at

developing dynamic capabilities than others. Their paper takes the view that dynamic

capabilities require commonalities for an advancement of empirical work. This seems

counter-intuitive to the essence of the construct. They adopt absorptive and

transformative capabilities as a framework that is both conceptually distinctive (inward

and outward looking) but mutually reinforcing. Although this paper makes a compelling

argument it does not entertain some of the fundamental issues discussed here.

Elswhere, Maclean et al (2015) discuss at length the limitations of the construct and

argue the inherent issues lies with the data being based on rational and normative

notions on action as oppose to accounting on novelty in action. They remedy this by

proposing the concept of creative action which may allow an impasse for the construct

to move forward.

In extreme contrast, Arend (2015) makes a case to as to the flaws of the

construct. His paper "Mobius' edge: infinite regress in the resource-based and dynamic

capabilities view" discusses the infinite regress problem and points out the logical

inconsistencies between levels as firms seek a competitive advantage. Arend (2015),

also relating it to the broader strategic field, explains the consequences this has on

management and academia. The paper, provides legitimate, is overly critical of the

merit that has been yielded by using this framework. It is clear that dynamic capabilities

as a construct have some merit and yet it matters are unresolved. The lack of empirical

data on dynamic capabilities has been noted above. Taking into consideration the

preceding discussion on the unstable foundations and lack of empirical work in the

dynamic capabilities field, there is little doubt that further empirical work needs to be

taken into consideration. Our methodology has been to take those concepts where there

is little disagreement and reframe it in such a way that will allow academics to further

the enquiry into this construct.

Moreover, a bigger challenge will be the development of our proposed model into an

operationalised entity. Further research needs to address; what proxies can be taken to

consider what a ‘high volatility market' is? What are the gatekeeper criteria from one

level to the next? How does the perception of management have an effect on the level of

dynamic capability a firm has? We hope our heuristic framework will provide a basis

that can be used as a springboard for future research on the topic of dynamic

capabilities.

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