Knowledge in the MNC Dynamic Capabilities

․Eisenhardt & Martin(2000) Resource Based View Dynamic Capabilities & market environment The Role of Managers Dynamic Capabilities in Innovation ․Eisenhardt & Martin(2000) ․ Augier & Teece(2009)

Eisenhardt & Martin (2000) Dynamic Capabilities: What are they? Resource Based View: View that firm's resources are the source of its competitive advantage. Dynamic capabilities: Set of specific and identifiable strategic and organizational processes. (eg. Strategic decision making and alliancing) Thesis of the article: RBV misidentifies locus of competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high velocity markets.

Context - Resource Based View Dimensions Industry Structure View Resource-Based View Relational View Unit of Analysis Industry Firm Pair or Network of Firms Source of Competitive Advantage Rel. Bargaining Power Barriers to entry Resources: Physical, Human, Techn., Financial, Intangible Relation-Specific Investments Interfirm Knowledge sharing routines Managerial Application Market Research Strategy formulation Identifying vital resources Improving processes Collaboration Strategies

Key Considerations - Resource Based View Definition of RBV: View that firm's resources, are the source of its competitive advantage. Especially when → rare, inimitable and non-substitutable(VRIN attributes) Key Considerations: Heterogenous – Firm resources differ from each other (case: Apple vs. Samsung. Same external conditions) Immobile – Companies cannot replicate rival's resources and use same strategies (at least in short-term)

Critisism - Resource Based View RBV breaks down in High Velocity Markets: Duration of competitive advantage unpredictable Time is essential aspect of strategy Dynamics capabilities are unstable processes that are challenging to sustain. VRIN dynamic capabilities not source of long term competitive advantage, because best practices exist RBV Thinking overemphasizes the strategic logic of leverage → In reality competitive advantage is often short term

Dynamic Capabilities vs RBV The firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments (Teece et al, 1997) The main difference between the resource-based view of the firm and dynamic capabilities is the fact that the latter focuses more on the issue of competitive survival rather than achievement of sustainable competitive advantage. This focus appears to be closer to contemporary business realities, the latter being more "high-velocity" than the case in previous decades

Conceptions of dynamic capabilities Traditional Views Reconceptualization Definition: Routines Specific organizational and strategic processes Heterogeneity: Firm specific Commonalities Pattern: Detailed Depending on market dynamism Outcome: Predictable Unpredictable Competitive Advantage: sustanained competitive advantages from VRIN DCs Competitive advantage from rare, substitutable DCs Evolution: Unique path Unique path shaped by learning

Dynamic Capabilities and Market dynamism Moderately dynamic markets High velocity markets Def: Stable stucture Ambiguos structure Pattern: Detailed, analytic, rely extensively on existing knowledge Simple, experimental, rely on newly created knowledge Execution: Linear Interative Outcomes: Predictable Unpredictable

Two key questions for manager 1. How can senior managers of successful companies change their existing mental models to adapt to radical discontinuous change? 2. Ultimately, how can companies maintain capability standards and hence ensure competitive survival?

Three dynamic capabilities Learn Intergrate Combine Transform Organizations and their employees need the capability to learn quickly and to build strategic assets. New strategic assets such as capability, technology and customer feedback have to be integrated within the company. Existing strategic assets have to be transformed or reconfigured.

Requires a different breed of manager…… The Role of Managers In today’s economy , Requires a different breed of manager……

Transform & Reconfigure A manager must lead, Dynamic Capabilities Sense & Seize opportunities Transform & Reconfigure opportunities Entrepreneurial management Learning Decision making

David Teece: Actually, they don't. Do managers really understand their organization capabilities ? David Teece: Actually, they don't.

Dynamic capabilities take a very long time to acquire. But once a company has those capabilities, they hold up for a very long time and are extremely difficult to replicate.

Apple Inc. - Steve Jobs

Apple Inc. - Steve Jobs

The dynamic Activities that David Teece learned from Apple

Steve Jobs: “ The system is that there is no system. ” That doesn’t mean we don’t have process. Apple is a disciplined company, and we have great processes. But that's not what it's about... Innovation comes from meeting people in the hallways or calling each other at 10:30 at night with a new idea... It comes from saying no to 1,000 things, to make sure we don't get on the wrong track. [BusinessWeek, Oct. 12, 2004]

Organizational Capabilities Expertise of organization Resources into offerings Dynamic Capabilities Going beyond routines ”Best practices” What they do well Associated with change Processes key part of organizational excellence

Dynamic Capabilities in Innovation Dynamic capabilities are well suited for unstable situations Innovation often means change and uncertainty Dynamic capabilities works with: Situation-specific knowledge Ad-hoc problem solving Iterative adaptation to unforeseen outcomes Dynamic capabilities go hand-in hand with innovation

Adapted from Lee and Kelley 2008 Entrepren-eurial Resource Deployment Relational Support Decision Support Skills, tacit knowledge held by individuals Promoting understanding and trust Advice and perspective Adapted from Lee and Kelley 2008

Managerial suggestions for innovation project leaders Entrepreneurial skills and motivation Accompanying experience and knowledge Relational support role Communication and commitment Decision support role Guidance-oriented instead of monitoring and control

Case: Aalto University layoffs Aalto University’s statutory negotiations have ended Negotiations concerned all personnel excluding professors Savings due to cuts in public funding of universities ( € 66 million) Resulting in personnel reductions of about 190 people Discuss with your neighbors: Based on RBV and dynamic capabilities approach, how could Aalto manage this changing situation while pursuing their goal of being a Top University?