Dynamic Capabilities

Dynamic Capabilities

Leading companies,  like IBM,  have been moving towards what is referred to as the “dynamic capabilities”  strategy management framework.    This approach suggests that those firms that are dynamic will have a competitive advantage today and in the future.

There are four key models that are emphasized in the world of strategy management:

  1. Five forces model:  Analysis from five ares that help to determine competitiveness and opportunity within a market.
  2. Resource-based view:  The view that the resources of a firm are the key to to a competitive advantage.
  3. Game theory:   Is a theory that focuses on decisions typically within a competitive environment.  The objective of game theory determine how to optimize decision making to maximize gains and minimize losses.
  4. Dynamic capabilities:   In essence, the assumption of this framework is that a firm that has ability to adapt quickly to changing environments can create short-term competitive positions that can be leveraged to build a longer-term competitive advantage.

What is it?

It is a  framework that assumes that winners in the global marketplace are responsive and rapid.  Change is speeding up in part because of advances in information and transportation. Goods and services that once hard to get, are now widely available.

The challenge today is having the ability to locate,  bring together, and motivate the right resources to work together to design and deploy winning solutions quickly. Often,  the right resources are those people that have the right knowledge to get the job done.

Until the last couple of decades, tangible assets were the most important assets of most businesses.  "Intangible assets” are becoming more important.  This includes technological know-how, business process know-how, brand, customer and business relationships, reputations, Culture,  intellectual property, patients, trademarks, copyrights, etc.

The framework encompasses consideration of both tangible and intangible resources.

Dynamic Capabilities: A Guide for Managers

In the global economy, investing in technology – and only technology – is unlikely to pay off. As this author writes wealth will flow to those that exhibit innovation in a dominant paradigm, own a strong intellectual property position in critical technologies, and have high-performance business models (Wal-Mart). Below, he describes how managers can achieve these ends. 1 It’s sometimes said that there’s nothing more practical than a good theory. Whether they realize it or not, managers need a theoretical understanding of enterprise growth and development. In this article, we propose the adoption of a conceptual framework that will help executives lead their organizations in highly competitive global markets. For some, it will change frames of reference and accepted priorities in terms of what’s important to build, own, and manage. To be useful, a theoretical framework must be general enough to provide guidance in a variety of situations. This calls for judiciousness so that an overwhelming number of variables don’t render analysis an impossible task. It also calls for sufficient generality and flexibility, so that the concepts can be applicable in a wide variety of circumstances.

To read the full articles on Ivey Business Journal click here.

Dynamic Capabilities

Highlights by David Willden