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Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth. By David J. Teece. Article in R& D Management 41(2) · March
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Citing Literature. Strategic moves can also the moves and countermoves of their rivals. Their be designed to influence rivals' behavior through competitive fortunes will swing more on total signaling. Strategic signaling has been examined demand conditions, not on how competitors in a number of contexts, including predatory deploy and redeploy their competitive assets. Put pricing Kreps and Wilson, a, b and differently, when there are gross asymmetries in limit pricing Milgrom and Roberts, a, competitive advantage between firms, the results b.

More recent treatments have emphasized of game-theoretic analysis are likely to be obvious the role of commitment and reputation e. The stronger competitor will Ghemawat, and the benefits of firms simul- generally advance, even if disadvantaged by cer- taneously pursuing competition and cooperation6 tain information asymmetries.

To be sure, incum- Brandenburger and Nalebuff, , On the other hand, if types of business behavior e. But by rationalizing observed behavior conflict is of interest to competitive outcomes. Many specific game- ing market circumstances. Unfortu- countermoves of competitors can often be use- nately, the results often depend on the precise fully formulated in game-theoretic terms.

How- specification chosen. The equilibrium in models ever, we doubt that game theory can comprehen- of strategic behavior crucially depends on what sively illuminate how Chrysler should compete one rival believes another rival will do in a against Toyota and Honda, or how United Air- particular situation. Thus the qualitative features lines can best respond to Southwest Airlines since of the results may depend on the way price Southwest's advantage is built on organizational competition is modeled e.


However, we use the term 'dynamic' in this paper in a different sense, referring to situations where there is rapid change in technology and market forces, and Thus even in the air transport industry game-theoretic formu- lations by no means capture all the relevant dimensions of 'feedback' effects on firms. United Airlines' and United Express's We have a particular view of the contexts in difficulties in competing with Southwest Airlines because of United's inability to fully replicate Southwest's operation capabilities is documented in Gittel Important exceptions can be found in Brandenburger and Competition and cooperation have also been analyzed ouside Nalebuff such as their emphasis on the role of com- of this tradition.

See, for example, Teece and Link, plements. However, these insights do not flow uniquely from Teece and Finan Teece, Nevertheless, coupled with other performance. This approach focuses on the rents approaches it can sometimes yield powerful accruing to the owners of scarce firm-specific insights.

I2 Competitive advan- we are concerned about in terms of the implicit tage lies 'upstream' of product markets and rests framing of strategic issues. Rents, from a game- on the firm's idiosyncratic and difficult-to- theoretic perspective, are ultimately a result of imitate resources.

Publications — David J. Teece

A approach is 'do unto others before they do unto leading text of the s Learned et al. The approach tition, whatever it sets out to do.

  1. The Unsuspected!
  2. .
  3. Doctor Whom, or E.T. Shoots and Leaves: The Zero Tolerance Approach to Parodication.
  4. .

Every organiza- unfortunately ignores competition as a process tion has actual and potential strengths and weak- involving the development, accumulation, combi- nesses; it is important to try to determine what nation, and protection of unique skills and capa- they are and to distinguish one from the other. Since strategic interactions are what Thus what a firm can do is not just a function receive focal attention, the impression one might of the opportunities it confronts; it also depends receive from this literature is that success in the on what resources the organization can muster.

Below, we discuss first the resource- or systematic framework for analyzing business based perspective and then an extension we call strategies.

Indeed, Andrews 46 noted that the dynamic capabilities approach. In short, rents are Ricardian. Shuen body of anecdotal and empirical literatureI5 that process. I8 Quite simply, firms lack the organiza- highlights the importance of firm-specific factors tional capacity to develop new competences in explaining firm performance. Cool and Schen- quickly Dierickx and Cool, Secondly, del have shown that there are systematic some assets are simply not readily tradeable, for and significant performance differences among example, tacit know-how Teece, , firms which belong to the same strategic group and reputation Dierickx and Cool, Thus, within the U.

Rumelt resource endowments cannot equilibrate through has shown that intraindustry differences factor input markets. Finally, even when an asset in profits are greater than interindustry differences can be purchased, firms may stand to gain little by in profits, strongly suggesting the importance of doing so. As Barney points out, unless a firm-specific factors and the relative unimportance firm is lucky, possesses superior information, or of industry effects. I6 Jacobsen and Hansen both, the price it pays in a competitive factor and Wemerfelt made similar findings.

A comparison of the resource-based approach Given that in the resources perspective firms and the competitive forces approach discussed possess heterogeneous and sticky resource earlier in the paper in terms of their implications bundles, the entry decision process suggested by for the strategy process is revealing. From the this approach is as follows: 1 identify your first perspective, an entry decision looks roughly firm's unique resources; 2 decide in which mar- as follows: 1 pick an industry based on its kets those resources can earn the highest rents; 'structural attractiveness' ; 2 choose an entry and 3 decide whether the rents from those assets strategy based on conjectures about competitors' are most effectively utilized by a integrating rational strategies; 3 if not already possessed, into related market s , b selling the relevant acquire or otherwise obtain the requisite assets to intermediate output to related firms, or c selling compete in the market.

From this perspective, the the assets themselves to a firm in related busi- process of identifying and developing the requi- nesses Teece, , The The resource-based perspective puts both verti- process involves nothing more than choosing cal integration and diversification into a new stra- rationally among a well-defined set of investment tegic light. Both can be viewed as ways of captur- alternatives. If assets are not already owned, they ing rents on scarce, firm-specific assets whose can be bought.

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The resource-based perspective is services are difficult to sell in intermediate mar- strongly at odds with this conceptualization. Further, resource endow- formance and diversification by Wemerfelt and ments are 'sticky:' at least in the short run, firms Montgomery provides evidence for this are to some degree stuck with what they have proposition. It is evident that the resource-based and may have to live with what they lack.

First, business existing firm-specific assets. See, for example, Womack, Jones, and Roos, source of economic profits, then it follows that ; Hayes and Clark, ; Barney, Spender and Reve, such issues as skill acquisition, the management ; Clark and Fujimoto, ; Henderson and Cockburn, ; Nelson, ; Levinthal and Myatt, Rumelt showed that stable learning become fundamental strategic issues. It industry effects account for only 8 percent of the variance in is in this second dimension, encompassing skill business unit returns.

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Furthermore, only about 40 percent of the dispersion in industry returns is due to stable industry acquisition, learning, and accumulation of organi- effects. Capability development, however, is not really analyzed. Dynamic Capabilities 5 15 and Roehl, , that we believe lies the greatest are influenced by past choices. At any given point potential for contributions to strategy. This path not The dynamic capabilities approach: Overview only defines what choices are open to the firm today, but it also puts bounds around what its The global competitive battles in high-technology internal repertoire is likely to be in the future. Well-known The notion that competitive advantage requires companies like IBM, Texas Instruments, Philips, both the exploitation of existing internal and and others appear to have followed a 'resource- external firm-specific capabilities, and developing based strategy' of accumulating valuable tech- new ones is partially developed in Penrose nology assets, often guarded by an aggressive , Teece , and Wernerfelt However, this strat- However, only recently have researchers begun egy is often not enough to support a significant to focus on the specifics of how some organiza- competitive advantage.

Several internal and external competences. The term 'dynamic' refers to the , Williamson , , Barney , capacity to renew competences so as to achieve Nelson and Winter , Teece , and congruence with the changing business environ- Teece et al. The term 'capabilities' emphasizes Terminology the key role of strategic management in appropri- ately adapting, integrating, and reconfiguring In order to facilitate theory development and internal and external organizational slulls, intellectual dialogue, some acceptable definitions resources, and functional competences to match are desirable.

We propose the following. One aspect of the strategic problem facing l9Deciding, under significant uncertainty about future states an innovating firm in a world of Schumpeterian of the world, which long-term paths to commit to and when competition is to identify difficult-to-imitate to change paths is the central strategic problem confronting internal and external competences most likely to the firm. In this regard, the work of Ghemawat is highly germane to the dynamic capabilities approach to support valuable products and services.

Thus, as strategy.