UNDERSTANDING DYNAMIC CAPABILITIES: A THEORETICAL STUDY

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1 UNDERSTANDING DYNAMIC CAPABILITIES: A THEORETICAL STUDY Vilmar Antonio Gonçalves Tondolo, Universidade de Caxias do Sul, Rua Francisco Getúlio Vargas, CEP Caxias do Sul/RS/Brazil / , vtondolo@gmail.com Cláudia Cristina Bitencourt, Universidade do Vale do Rio dos Sinos, School of Management and Economic Sciences, Av. Unisinos, B. Cristo Rei / CEP São Leopoldo/RS/Brazil,+55 51/ , claudiacb@unisinos.br ABSTRACT Dynamic Capabilities (DCs) has drawn the attention of researchers in the field of study of organizational strategy. DC can be seen as one of the underlying theories in the search for understanding of competitive advantage. However, it is unclear how the DCs develop and operate within organizations. Accordingly, this study aims to contribute to the understanding of DC by identifying motivators, processes and results of the DC, anticipating future discussions on the DC, and contributing to future studies on the topic. Through a literature review, we identified the main aspects of DC and suggest propositions regarding theoretical aspects of DC. Keywords: Dynamic Capabilities, Competitive Advantage, Literature Review, Organizations, Strategy INTRODUCTION Dynamic Capabilities (DCs) has drawn the attention of researchers in the field of study of organizational strategy, especially regarding the development of resources and capabilities (Teece, Pisano, & Shuen, 1997; Ambrosini & Bowman, 2009; Wang & Ahmed, 2007; Biazzi, 2012). However, some criticism on the theory of DC is found in the literature, based mainly on issues involving terminology (Zahra, Sapienza, & Davidson, 2006), tautology (Zollo & Winter, 2002) and research methods (Delbridge, Gratton, & Johnson, 2006). Thus, even with the growth of studies on DC (Ambrosini & Bowman, 2009), a great effort is still currently being made in order to develop the theory, as well as review some concepts, concerning the practice of DC in organizations (Wang & Ahmed, 2007). Thus, clarifying how DC operates on the development of organizational capabilities is one of the central points of the theory development (Alsos et al., 2007). Therefore, there is a long way to go before establishing a consensus about what DC is and how to develop DC them (Argote & Ren, 2012). For example, the DC and the Resource-Based View (RBV) have a "negative heritage"; in other words, the inconsistencies that are criticized in literature come from the excessive fragmentation of the strategy study field (Green, Larsen, & Kao, 2008). As a complement, the large number of concepts and definitions, (for example, what are resources and capabilities?) contributes to generate ambiguity in both theories (Wang & Ahmed, 2007; Menon, 2008; Helfat & Winter, 2011). Even so, the literature also highlights the value of RBV and DC in the pursuit of understanding the sources of competitive advantage (Menon, 2008)

2 The theory of the DC is also criticized for not having a complete response on the dynamization of capabilities (Schreyogg & Kliesch-Eberl, 2007). One possible reason is the excessive focus on post hoc solutions rather than a search for answers based on the effect of DC on resources and organizational capabilities. Moreover, it is difficult to segregate the results of DC (Zahra, Sapienza, & Davidson, 2006), to differentiate them from core competences (Wilkens, Menzel, & Pawlowsky, 2004), and no less important, to identify the processes of DC that operate within organizations (Lawson & Samson, 2001). Accordingly, this study aims to contribute to the understanding of DC by identifying motivators, processes and results of the DC, anticipating future discussions on the DC, and contributing to future studies on the topic. Regarding the background, it is essential to identify which theoretical developments, or which aspects, motivate the development of DC in organizations. With regard to processes, it is also important to identify those aspects which constitute the DC. By leveling results, we attempt to identify the contributions of DC to organizations. Thus, this study has the following definition with reference to DC: "an organization's ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments" (Teece, Pisano, & Shuen, 1997, p. 516). This concept emphasizes the DC as a set of processes that result in changes in the feature set and capabilities of running an organization in order to adapt the organization to deal with environmental changes. Aiming to meet the proposed goal, this study, characterized as a theoretical essay, was developed through a literature review. It followed the approach suggested by Leary and Baumeister (1997) and Torraco (2005). As these authors point out, the literature review helps to produce new knowledge about the topic, develop more integrative research questions and generate new frames and perspectives. This study is organized in the following sections: first, we discuss approaches of DC; Following, we discuss motivators, processes, and results of DC; finally, we present final considerations and references. APPROACHES OF DYNAMIC CAPABILITIES DC may be considered as a "dynamic" perspective of the resources strategy approach. This perspective has been studied since the work of Teece and Pisano (1994) and later in the work of Teece, Pisano, and Shuen (1997) (Cavusgil, Seggie, & Talay, 2007). These authors define DC as "the organization's ability to integrate, build and reconfigure internal and external competencies to rapidly address changing environments" (Teece, Pisano, & Shuen, 1997, p. 516). That work can be regarded as the most influential study on the DC (Schreyogg & Kliesch-Eberl, 2007; Witcher & Chau; Harding, 2008). According to Zollo and Winter (2002), an organization is viewed as a set of operational and administrative routines that evolve over time through performance feedback. Moreover, the same authors argue that the definition of DC opens up some questions such as what DCs are and how they operate. Based on different perspectives on DCs, this paper presents different definitions, noting the emphasis of each of them, as can be seen in the Appendix. As it can be perceived, the literature offers numerous concepts of DC. By analyzing each one, it is possible to highlight several aspects. First, the main result of the DC is to create, renew or

3 integrate resources, assets, capabilities, skills and routines enabling organizations to deal with environmental changes. As Wang and Ahmed (2007, p. 40) argue, " capability development as a result of dynamic capabilities over time is often discussed and demonstrated in empirical research." Secondly, the different aspects of the DC are emphasized as follows: behavioral orientation, management activities, high-level organizational skills, organizational skills, organizational routines and processes, learning processes, organizational activities, and patterns. Thus, it is impossible to argue that the DC is based only on one or a few aspects of an organization. In other words, the DCs are seen as a set of organizational aspects which, over time, allow organizations to manage external and internal competitive demands. In this sense, different approaches on the DC have recently been highlighted in the strategy literature. Schreyogg and Kliesch-Eberl (2007) highlight three approaches of DC, as follows: (i) Radical dynamization approach, (ii) integrative approach, and (iii) innovation routine approach. According to the authors, the proactive approach is to adapt the radical concept of capability to the dynamic environment. In view of Enseinhardt and Martin (2000), the DC is considered different from regular capabilities. In this way, the DC is able to adapt organizations to changing environments through processes such as reconfiguration, integration and acquisition of resources. In other words, DC develops a new set of capabilities, enabling organizations to deal with environmental changes. Concepts like "adhocracy" and "organizational learning" are very close to this approach of DC (Schreyogg & Kliesch-Eberl, 2007). Based on the thoughts of Teece, Pisano, and Shuen (1997), the integrative approach is the more usual approach of the DC. DC is seen as mechanisms to develop new skills demanded by environmental changes. Three dimensions (positions, paths and processes) allow the organization to adapt, integrate and reconfigure the set or stock of resources and capabilities. In addition to these three dimensions, the DC has learning and reconfiguration as sub-dimensions. This approach emphasizes the integration of static and dynamic elements (Schreyogg & Kliesch- Eberl, 2007), for example, the integration of resources and capabilities. Following the work of Nelson and Winter (1982) and Zollo and Winter (2002), the innovation routine approach emphasizes the role of routines on innovative development and changing capabilities. The DC in the form of an innovative routine emerge from learning processes (Schreyogg & Kliesch-Eberl, 2007). Thus, in this view, the DC has three distinct approaches, each based on specific arguments. In complementary fashion, Alsos et al. (2007), point out two approaches of DC. According to the authors, the first approach considers the DC as an evolutionary process that has three stages: search (variation), selection (evaluation) and routinization (execution). That approach matches the approach of the innovative routine highlighted by and Schreyogg and Kliesch-Eberl (2007). The second approach considers DC as mechanisms and organizational processes, which enable organizations to build, reconfigure, integrate, rearrange and release resources and capabilities in order to deal with changes in the competitive requirements. Coordination, integration, and learning are seen as the key processes (Alsos et al., 2007). That approach corresponds to the radical dynamization and integrative approach outlined by Schreyogg and Kliesch-Eberl (2007)

4 Thus, instead of three approaches of DC, Alsos et al. (2007) discuss two, represented by routine, innovation, integration and learning aspects. Therefore, the DC cannot be seen as just one capability, but a set of capabilities that are embedded in organizational processes. Following, the text is returned to the discussion of processes embedded in the DC. MOTIVATORS OF DYNAMIC CAPABILITIES In the search for a broader understanding of DC, it is necessary to identify and understand the aspects that precede the dynamic capabilities, e.g. aspects that motivate the organization to develop DC. Based on the analysis of previous studies, we identified two types of antecedents (internal and external) to organizational DC development. Changing environmental requirements (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Rindova & Kotha, 2001; Adner & Heltaf, 2003; Blyler & Coff, 2003; Teece, 2007) and market dynamism (Eisenhardt & Martin, 2000; Wang & Ahmed, 2007) suggest that organizations facing dynamic markets and environments are more likely to experience the development of DC. Moreover, stimulation and external feedback (Zollo & Winter, 2002) complement the role of the external environment as motivators of DC. For example, Drnevich and Kriaučiūnas (2011) and Molina, Bustinza, and Gutierrez-Gutierrez (2012) identified through surveys that environmental dynamism positively affects the development of DC in organizations. Additionally, it was also possible to identify in the literature the importance of the internal environment. For example, the recognition by managers of a need or opportunity to be exploited (Montealegre, 2002), internal groups aiming to develop a capacity (Helfat & Peteraf, 2003), and entrepreneurial management (Teece, 2007) emphasize that organizations must be aware of what is happening, recognizing incentives and opportunities to be explored. In other words, the opportunities should be identified and explored (Zhara, Sapienza, & Davidson, 2006) for an organization to develop DC. In this sense, we highlight the role of corporate entrepreneurship (Zhara, Sapienza, & Davidson, 2006; Teece, 2007). Thus, it can be assumed that the development of DC is driven by external and internal motivators (e.g. Wang & Ahmed, 2007). Following this logic, the idea behind the external and internal motivators is to understand DC as a whole. Thus, DC is required to continuously adapt the organization, trying to keep up with the demands of the changing environment and customers, shaping the market through the development of new products, processes and business models. The central logic is that the regular activities (e.g. incentive systems, cost control) are necessary but insufficient to maintain a competitive advantage. Thus, the organization's performance still depends on further actions, such as the discovery and development opportunities (prospecting and exploration) and many other related high-level capabilities in which the DC are included (TEECE, 2007). Based on the above discussion, we present the following propositions: P1: Changing environmental requirements and market dynamism are the main external motivators of companies DC; P2: Corporate entrepreneurship (e.g. entrepreneurial orientation) is the main internal motivator or companies DC

5 PROCESSES OF DYNAMIC CAPABILITIES As previously noted, the DC is connected to various organizational aspects (e.g. processes). According to this view, the DC may be regarded as a higher order process which are performed by a set of sub-processes (Menon, 2008; Ambrosini & Bowman, 2009) and imbricated in such processes (Wang & Ahmed, 2007). As pointed out by Teece, Pisano and Schuen (1997), organizational processes are considered a category of DC. For these authors, managerial and organizational processes are the way things are done in the firm, or what might be referred to as its routines, or patterns of current practice and learning" (p. 518). This aspect opens an important debate about which processes are DC processes, which is discussed below. Based on Teece, Pisano, and Schuen (2007), Ambronisi and Bowman (2009) point out that reconfiguration, leveraging, learning and creative integration are the main processes that encompass DC. Reconfiguration refers to "the transformation and recombination of assets and resources, e.g. the consolidation of central support functions that often occurs as a result of an acquisition" (Ambronisi & Bowman, 2009, p. 35). In this logic, reconfiguration can be understood as a change in the way the resources and organizational capabilities interact among themselves (Menon, 2008), resulting in internal restructuring (Alsos et al., 2007). That is, reconfiguration emphasizes the role of management in driving organizational change and strategy (Hodgkinson & Healey, 2011). Other authors also support reconfiguration as a process of DC, including Wang & Ahmed ( 2007), Helfat & Peteraf ( 2003), Blyler & Coff (2003), Eisenhardt & Martin (2000) and Teece, Pisano, & Schuen (1997). Leveraging involves "replicating a process or system that is operating in one business unit into another, or extending a resource by deploying it into a new domain, for instance by applying an existing brand to a new set of products"(ambronisi & Bowman, 2009, p. 35). In this sense, a resource and/or capability is not created or renewed, but it is replicated in another business context, or even partially replicated (Heltaf & Peteraf, 2003). This process is central to competitive advantage (Cavusgil, Seggie, & Talay, 2007; Teece, Pisano, & Schuen, 1997; Alsos et al., 2007). Learning "allows tasks to be performed more effectively and efficiently as an outcome of experimentation, reflecting on failure and success" (Ambronisi & Bowman, 2009, p. 35). In this sense, learning generates new knowledge, new thinking, reflecting on the use of resources and organizational capabilities (Menon, 2008) that, for instance, allow the organization's activities be performed in a more agile way (Cavusgil, Seggie, & Talay, 2007; Teece, Pisano, & Schuen, 1997). As pointed out by Zollo and Winter (2000), DC emerge from learning mechanisms, being shaped by the evolution of learning over time. Thus, learning is a dynamic concept behind the DC (Chen & Lee, 2009; Teece, Pisano, & Schuen, 1997). Creative integration relates to the ability of the firm to integrate its assets and resources, resulting in a new resource configuration" (Ambronisi & Bowman, 2009, p. 35). Creative integration also refers to the ability of the organization to coordinate its set of resources and capabilities, being central to the process of leveraging and reconfiguration (Menon, 2008; Wang & Ahmed, 2007; Cavusgil, Seggie, & Talay, 2007; Blyler & Coff, 2003; Helfat, & Peteraf, 2003; Eisenhardt & Martin, 2000; Teece, Pisano, & Schuen, 1997). It is worth mentioning that

6 creative integration, besides reconfiguring the set of resources and organizational capabilities, also refers to the integration of new resources and capabilities into the existing set (Alsos et al., 2007). The perspective of the external environment cannot be disregarded in the cases of DC. For example, observing and evaluating the external environment in order to sense the environment generates discovery of new opportunities and ideas (Alsos et al., 2007). Thus we highlight the process of sensing, which can be understood as the organizational ability to accurately sense changes in their competitive environment, including potential shifts in technology, competition, customers, and regulation" (Harreld, O'reilly III, & Tushman, 2007, p. 24). In other words, sensing refers to the identification of an opportunity (Teece, 2012), referring to the logic of corporate entrepreneurship (Hodgkinson & Healey, 2011). Once an opportunity is detected, the organization can transform it, following all paths in products and/or services, referring to the logic of seizing (TEECE, 2007). Seizing brings the internal perspective of the organization, which can be understood as the organizational ability to act on these opportunities and threats; to be able to seize them by reconfiguring both tangible and intangible assets to meet new challenges" (Harreld, O'reilly III, & Tushman, 2007, p. 25). That is, the set of resources and capabilities must be mobilized to exploit the opportunity identified (Teece, 2012). These two processes bring the logic of exploration/exploitation (Teece, 2007), emphasizing the role of strategic transformation in organizations (Hodgkinson & Healey, 2011). It also highlights two additional processes: resource acquisition and release of capabilities and resources. Acquisition takes the outside perspective, referring to the logic of acquisition, as well as access via interorganizational relationships (Alsos et al., 2007; Eisenhardt & Martin, 2000) and ties formed by organizational social capital (Blyler & Coff, 2003). Since the release of the resources and capabilities refers to the process of choice, for instance, releasing the organization to make commitments with resources and capabilities that are needed more than others, making the renewal process from the set of resources and capabilities is faster, or at least possible (Blyler & Coff, 2003; Helfat & Peteraf, 2003; Eisenhardt & Martin, 2000). This process resembles the selection process, highlighted by Zott (2003, p. 105), in which selection refers to the organizational activities involved in identifying a preferred alternative for organizational change, such as the evaluation of alternatives. As it is possible to identify in the literature, the DC consist of specific processes (e.g., leverage and learning). It is also possible to highlight at least two of the elements related to the emphases of the DC. An emphasis stresses processes and learning (e.g. Ambrosini & Bowman, 2009; Teece, 2007; Wang & Ahmed, 2007; Eisenhardt & Martin, 2000; Teece, Pisano, & Shuen, 1997). This emphasis has considerable influence in the work of Teece, Pisano, and Shuen (1997). Another emphasis stresses routines and learning mechanisms (e.g. Chen & Lee, 2009; Zott, 2003; Zollo & Winter, 2002). This emphasis is influenced by the work of Nelson and Winter (1982). Finally, the capability life cycle (Helfat & Peteraf, 2003) also emphasizes learning processes and routines, though with more emphasis on the path, through a perspective of development/maturation. In this sense, the DC may emerge in different forms. Some are necessary to integrate and reconfigure resources and capabilities; others are about creating new

7 resources and capabilities, while others are on release of assets and capabilities (Ambrosini & Bowman, 2009). Based on the previous literature, we suggest the following proposition: P3: DC comprises a set of processes such as reconfiguration, leveraging, learning, creative integration, sensing, seizing, resource acquisition and releasing. RESULTS OF DYNAMIC CAPABILITIES Some criticism can be found in the literature regarding the results of the DC. In particular, the main question is whether organizational performance is directly affected by DC (Wang & Ahmed, 2007; Ambrosini & Bowman, 2009). Based on the literature review, this paper agrees with the authors who argue that organizational performance is indirectly affected by DC. Thus, it is argued that the first-order result of DC is the effect in the set of resources and organizational capabilities. In other words, DC refers to the development of capabilities related to a specific strategy. Then, the second order result of DC is twofold, comprising adaptability to handle changes in environmental requirements and therefore the performance of organizations. Likewise, the literature is vast regarding the results of DC. Thus, it is important to aggregate them into distinct categories. First, the DC have effect on the routines, resources, assets and organizational capabilities (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Eisenhardt & Martin, 2000; Zollo & Winter, 2002; Montealegre, 2002; Adner & Helfat, 2003; Zott, 2003; Blyler & Coff, 2003; Helfat & Peteraf, 2003; Bowman & Ambrosini, 2003; Zhara, Sapienza, & Davidson, 2006; Teece, 2007; Wang & Ahmed, 2007; Ambrosini & Bowman, 2009; Helfat & Winter, 2011; Hsu & Wang, 2012). As example, we present the renewal of routines and capabilities, development of capabilities high performance routines, new configurations of resources, adaptation and development of organizational routines and remodeling the organizational set of resources and capabilities. Second, dealing with environmental changes and market dynamism are also results of DC (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Eisenhardt & Martin, 2000; Rindova & Kotha, 2001, Zollo & Winter, 2002; Montealegre, 2002; Blyler & Coff, 2003; Bowman & Ambrosini, 2003; Zhara, Sapienza, & Davidson, 2006; Teece, 2007; Wang & Ahmed, 2007; Ambrosini & Bowman, 2009; Helfat & Winter, 2011; Hsu & Wang, 2012 ). We highlight the ongoing internal adjustment, adjusting to the requirements of the environment, exploitation of resources and organizational capabilities, combining or creating market changes, new strategies, strategic flexibility, efficiency, and operation of a need or opportunity. Following this logic, Molinas, Bustinza, and Gutiérrez-Gutiérrez (2012) considered the strategic flexibility, structural flexibility and operational flexibility as a measure of the DC. Third, competitive position and competitive advantage are the final results of the DC (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Eisenhardt & Martin, 2000; Rindova, & Kotha, 2001; Adner & Helfat, 2003; Zott, 2003; Blyler & Coff, 2003; Helfat & Peteraf, 2003; Bowman & Ambrosini, 2003; Zhara, Sapienza, & Davidson, 2006; Teece, 2007; Wang & Ahmed, 2007; Ambrosini & Bowman, 2009). Thus, one can consider that DC primarily operates in the set of resources and organizational capabilities. After that, organizations become able to deal with environmental/ market requirements. As a final result, organizations enhance their competitive

8 position and their competitiveness. The results found by Drnevich and Kriaučiūnas (2011) corroborate this perception. Through a survey, the authors found that the DC does not significantly affect the performance level of firms, but, significantly affects level of organizational processes, suggesting that the DC does not automatically affect performance but contribute sensitively to competitiveness conditions of organizations. Based on the above discussion, we present the following propositions: P4: The results of DC are twofold; P4a: The first order result of DC capabilities is the organizational set of resources and capabilities, enabling companies to deal with environmental and competitive requirements; P4b: The second order result of DC is to enhance the performance of companies competitive strategy. FINAL CONSIDERATIONS This theoretical study aimed to identify the main aspects of the DC. Unlike other studies, this work considers the DC rather than a specific capacity, such as capacity for innovation, but as a set of processes that enable the organization to deal with changes in the competitive environment. Because it is still a theory in development, studies that aim to understand broadly the theory are welcome. Accordingly, this study is useful in that it may help future empirical studies, both qualitatively and quantitatively. For example, qualitative studies can take advantage of this work to define categories of analysis; quantitative studies can already use aspects observed here and launch testable hypotheses. Empirical studies on the DC are still little explored (Menon, 2008). They focused on a specific DC (Ambrosini & Bowman, 2009), showing results disconnected, prompting further research efforts towards an integrated understanding of DC (Wang & Ahmed, 2007). As noted by Teece (2012), studies on the logic of the DC are still recent, thus offering challenges and opportunities for research. New studies on the resources and capabilities go beyond the possession and use of value routines. Further studies could focus on the relationship of superior performance and the role of resource management, the importance of the organizational environment, the role of the consumer, and the relationship of DC with other theories (Douglas & Ryman, 2003; Hoopes, Madsen, & Walker, 2003, Winter, 2003; Helfat & Peteraf, 2003; Gaveti, 2005; Herrmann, 2005; Sirmon, Hitt, & Ireland, 2007; Priem, 2007): manufacturing strategy (Schroeder; Juntila, & Bates, 2002), internationalization (Sapienza et al., 2006); management decision (Adner & Helfat, 2003; Zahra, Sapienza, & Davidson, 2006; Hodgkinson & Healey, 2011), corporate social responsibility (Marcus & Anderson, 2006), and antecedents, processes and outcomes of DC (Zahra, Sapienza, & Davidson, 2006). Some criticisms of the DC are found in the literature. For example, there is criticism about terminology (Zahra, Sapienza, & Davidson, 2006; Helfat & Winter, 2011), tautology (Zollo & Winter, 2002) and several different methods of research resulting in many different meanings (Delbridge, Gratton, & Johnson, 2006). Further the difficulty of distinguishing among various concepts of capabilities, such as the difference in operational capabilities and dynamic ones, has been criticized (Helfat & Winter, 2011). As noted in this study, there are at least three different

9 approaches to the concept of DC, corroborating the criticism. However, this fact should be considered an opportunity to research, raising new studies to fully understand the concept of DC. Regarding DC processes, the literature offers several of them. Somehow, this aspect is the tautological character mentioned in this paper. To be more understandable, this work has categorized these processes as follows. First, there is evidence pointing to managerial and organizational processes, including learning mechanisms (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Eisenhardt & Martin, 2000; Zollo & Winter, 2002, Adner & Helfat, 2003; Bowman & Ambrosini, 2003; Zott, 2003; Zhara, Sapienza, & Davidson, 2006; Teece, 2007; Ambrosini & Bowman, 2009), such as coordination/integration, learning and reconfiguration. These elements focus on changing routines, resources and capabilities. Secondly, there are processes that highlight positions of organizations (Teece & Pisano, 2004; Teece, Pisano, & Shuen, 1997; Helfat & Peteraf, 2003; Zott, 2003), representing the commitment to develop tangible and intangible assets. Third, there are processes with a focus on path dependencies (Teece & Pisano, 2004; Teece, Pisano &, Shuen, 1997). Fourth, individual and managerial aspects (Adner & Helfat, 2003; Blyler & Coff, 2003; Hsu & Wang, 2012) are also processes of DC, such as human capital, social capital and managerial cognition, which underline the role of the individual and highlight the management aspect in the development of DC. Fifth, specific capabilities, but ones common among companies, allow businesses to exploit the opportunities offered by the external environment (Wang & Ahmed, 2007). These processes are the absorptive capacity, the innovative capacity, adaptability, seizing, and sensing (Harreld, O'reilly III, & Tushman, 2007; Teece, 2007). Therefore, these five categories can be used to regard managerial and organizational processes, strategic processes and individual aspects as development processes of DC. Criticism is also focused on the current development of the DC theory, on aspects such as the source of competitive advantage. While observing certain evolution in terms of theoretical contributions, there is still sufficient empirical support for these arguments (Ambrosini & Bowman, 2009). However, we can already see the trend of quantitative empirical study on DC, as in the studies of Drnevich and Kriaučiūnas (2011) and Molina; Bustinza, and Gutiérrez- Gutiérrez (2012). Overall, more refined qualitative studies, such as participant observation, are suggested for understanding the imbrication of DC in the strategy practice (Green, Larsen, & Kao, 2008). It also suggests quantitative studies aiming aimed to develop metrics for measuring multidimensional DC (Menon, 2008). Thus, there are many possibilities for future work on DC, both qualitative and quantitative, and new literature reviews as well. These interconnected ways are valuable for the development of a well-defined theory of DC. References Adner, R., & Helfat, C.R. (2003). Corporate effects and dynamic managerial capabilities. Strategic Management Journal. 24, Alsos, G., Borch, O. Ljunggren, E., & Madsen, E. (2007). The dynamic capability concept and its operationalization. Proceedins of The Babson College Entrepreneurship Research Conference at IE Business School, held on 7 9 June in Madrid, Spain

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14 Appendix: DC definitions and emphasis. DC Definition We define dynamic capabilities as the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Dynamic capabilities thus reflect an organization's ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions (Teece, Pisano, & Shuen, 1997, p. 516). The firm s processes that use resources specifically the processes to integrate, reconfigure, gain and release resources to match and even create market change. Dynamic capabilities thus are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die (Eisenhardt & Martin, 2000, p.1107). Dynamic capability can be defined as an MNE s ability to create, deploy, and upgrade organizationally embedded and return-generating resources in pursuit of sustained competitive advantages in the global market. Dynamic capabilities requires the capacity to extract economic benefits from current resources and to develop new capabilities (Luo, 2000, p. 355) A dynamic capability is a learned and stable patterns of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness (Zollo & Winter, 2002, p. 340). The dynamic capability approach focuses attention on the firm s ability to renew its resources in line with changes in its environment. [ ] The dynamic capabilities view (DCV) focuses on the capacity an organization facing a rapidly changing environment has to create new resources, to renew or alter its resource mix (Bowman & Ambrosini, 2003, p. 292). Dynamic capabilities build, integrate, or reconfigure operational capabilities. Dynamic capabilities do not directly affect output for the firm in which they reside, but indirectly contribute to the output of the firm through an impact on operational capabilities (Helfat & Peteraf, 2003, p. 997) It is suggested that dynamic capabilities are indirectly linked with firm performance by aiming at changing a firm s bundle of resources, operational routines, and competencies, which in turn affect economic performance. More specifically, dynamic capabilities are embedded in routine organizational processes that guide the evolution of a firm s resource configuration and operational routines (Helfat & Raubitschek, 2000: 975; Nelson & Winter, 1982; Zollo & Winter, 2002). (p. 98) [ ] Dynamic capabilities create and shape a firm s resource positions (Eisenhardt & Martin, 2000; Galunic & Eisenhardt, 2001), capabilities (Kogut & Zander, 1992), operational routines (Nelson and Winter, 1982), and activities (Porter, 1985,1994) (Zoot, 2003, p. 100). A general dynamic capability is the ability to renew, augment, and adapt competencies over time (Teece, Pisano, & Shuen, 1992, p. 18; Tripsas, 1997; Winter, 2003) (Marcus &Anderson, 2006, p. 19) We distinguish substantive capability from the dynamic ability to change or reconfigure existing substantive capabilities, which we term as the firm s dynamic capabilities. Thus, the qualifier dynamic distinguishes one type of ability (e.g. the substantive ability to develop new products) from another type of ability (e.g. the ability to reform the way the firm develops new products). A new routine for product development is a new substantive capability but the ability to change such capabilities is a dynamic capability (Zahra, Sapienza, & Davidson, 2006, p. 921). A dynamic capability is the capacity of an organization to purposefully create, extend, or modify its resource base (HELFAT et al., 2007, p. 4). Emphasis ability routines MNE s ability and capacity Learning process patterns and ability processes process and routines ability ability capacity

15 We define dynamic capabilities as a firm s behavioral orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities and, most importantly, upgrade and reconstruct its core capabilities in response to the changing environment to attain and sustain competitive advantage. By this definition, we first argue that dynamic capabilities are not simply processes, but embedded in processes (Wang & Ahmed, 2007, p. 35) Dynamic capabilities, by contrast, relate to high-level activities that link to management s ability to sense and then seize opportunities, navigate threats, and combine and reconfigure specialized and cospecialized assets to meet changing customer needs, and to sustain and amplify evolutionary fitness, thereby building long-run value for investors (Teece, 2007, p. 1344). Specific organizational processes by which managers alter their resource base (Cavusgil, Seggie, & Talay, 2007, p. 162). Our view is that dynamic capabilities are best conceived as enduring routines, systems, and processes that are visible, known, and managerially intended as a means to achieving new resource configurations (Døving & Gooderham, 2008, 845). A dynamic capability is not a capability in the RBV sense, a dynamic capability is not a resource. A dynamic capability is a process that impacts upon resources. Dynamic capabilities are about developing the most adequate resource base. They are future oriented, whereas capabilities are about competing today, and they are static if no dynamic capabilities are deployed to alter them (Ambrosini & Bowman, 2009, p. 34). Set of organizational processes High-level managerial activities processes routines, systems and processes processes