Dynamic Capabilities and Strategic Management David Teece, Gary Pisano, and Amy Shuen (1997) Strategic Management Journal Presented by Der-Ting Huang

Model—Exploitation of Market Power Competitive Forces Porter (1980) Economic rents in competitive framework are monopoly rents. (Teece, 1984)

Model—Exploitation of Market Power Strategic Conflicts Game theory analyzes the nature of competitive interaction between rival firms (Shapiro, 1989) * Game Theory Behaviors: predatory pricing and limit pricing Believes: price competition (e.g. Bertrand, Cournot), strategic asymmetries (e.g. first-mover advantages) Ignores how significant new rent streams are created and protected Rents are a result of mangers’ intellectual ability to play the game Build a dynamic view

Model—Efficiency sticky Resource-based View Rents accruing to the owners of scarce firm-specific resources Competitive Advantage: firm’s difficult-to-imitate resources Firms are heterogeneous wrt their resources/capabilities/endowments Business development is viewed as an extremely complex process Some assets are not readily tradable (e.g. tacit know-how, reputation) Even when an asset can be purchased, firms may stand to gain little by doing so sticky

Model—Efficiency Dynamic Capabilities Approach Dynamic: the capacity to renew competences so as to achieve congruence with the changing business environment Capabilities: emphasizes the key role of strategic management in appropriately adapting, integrating, and reconfiguring external and internal resources, and functional competence to match the requirements of a changing environment

Dynamic Capabilities Framework Factors of production Resources Organizational routines/competences Core competences Dynamic capabilities Products

Dynamic Capabilities Framework Markets and Strategic Capabilities What is not strategic? Homogeneous assets What is it about firms which undergirds competitive advantage? What is distinctive about firms? Competences/capabilities which are ways of organizing and getting things done which cannot be accomplished merely by using the price system to coordinate activity Properties of internal organization cannot be replicated by a portfolio of business units amalgamated just through formal contracts

Dynamic Capabilities Framework Processes, Positions, and Paths Processes: the way things are done in the firm Positions: current specific endowments of technology, intellectual property, complementary assets, customer base, and its external relations with suppliers and complementors Paths: strategic alternatives available to the firm, and the presence or absence of increasing returns and attendant path dependencies

Dynamic Capabilities Framework Processes Coordination/ integration Learning Reconfiguration and transformation

Dynamic Capabilities Framework Positions Structural assets Institutional assets Organizational boundaries Market assets Positions Technological assets Complementary assets Reputational assets Financial assets

Dynamic Capabilities Framework Paths Path dependencies Technological opportunities Assessment

Dynamic Capabilities Framework Replicability and Imitability of Organizational Processes and Positions Replication: competences and capabilities, and routines are difficult to replicate geographic and product line expansion learning and improvement Imitation: replication performed by a competitor high tacit component hard to imitate Intellectual property rights

Conclusion Market Power vs Efficiency Profits stem from strategizing Market positions shielded behind entry barriers Competitive advantages lie at the level of industry Success stem from both experience and efficiency obtained in early periods Path dependencies and technological opportunities Competitive advantages come from high-performance routines operating inside the firm