Presentation on theme: "Dynamic Capabilities and Strategic Management"— Presentation transcript:
1 Dynamic Capabilities and Strategic Management David J. Teece, Gary Pisano and Amy Shuen (1997)Strategic Management Journal, Vol. 18:
2 Focus, Methods and Motivation of This Paper Focus: How do firms achieve and sustain competitive advantage?Motivation: Strategic theory replete with analyses of firm-level strategies for sustaining and safeguarding extent competitive advantage. Not enough research on how and why firms build competitive advantage in regimes of rapid change.(Question: Is asking “Why” on existing theory a way to develop new topic?)Methods: Develop the dynamic capabilities approach; approach relevant in a Schumpeterian world of innovation-based competition, price/performance rivalry, increasing returns and “creative destruction” of existing competences.
3 Notes about the Methods Joseph Alois Schumpeter (8 February 1883 – 8 January 1950)was an Austrian-American economist and political scientist. He popularized the term "creative destruction" in economics.Creative destruction is a term originally derived from Marxist Economic Theory which refers to the linked processes of the accumulation and annihilation [ə'naɪəleɪt] of wealth under capitalism. Important work:Evolutionary economicsHistory of Economic AnalysisBusiness cyclesSchumpeter and KeynesianismSchumpeter and capitalism's demiseSchumpeter and democratic theorySchumpeter and entrepreneurshipSchumpeter and InnovationSchumpeter and the Gold Standard
4 Structure of This Paper Review of Existing and Accepted FrameworkDynamic Capabilities FrameworkConclusionsFuture Research
5 Review of Existed and Accepted Framework Model 1 – The exploration of Market PowerCompetitive Forcesentry barriers; threat of substitution; bargaining power of buyers; bargaining power of suppliers; rivalryamong industry incumbents – determine the inherent profit potential of an industry or sub-segment of anindustryStrategic ConflictHow firms can influence the behavior and actions of rival firms and thus the market environment?By manipulating the market environment, a firm may be able to increase its profits.Game Theory – where competitors do not have deep-seated competitive advantages, the moves and countermoves ofcompetitors can often be usefully formulated in game-theoretical termsModel 2 – EfficiencyResource-Based PerspectiveThis approach sees firms with superior systems and structures being profitable not because they engage in strategicinvestments that may deter entry and raise prices, but because they have markedly lower costs, or offer markedly higherquality or product performanceDynamic Capabilities – Framework introduced in this paperDynamics – the capacity to renew competences so as to achieve congruence with the changing business environmentFor an innovating firm in a world of Schumpeterian competition – identify difficult-to-imitate internal and external competences is most likely to supportvaluable products and services
6 Framework of “Dynamic Capabilities Framework” TerminologyMarket and Strategic CapabilitiesProcess, Positions and PathsReliability and Imitatability of Organizational Process and Positions(Prof., in the paper, it is written imitatability, but why it is not in google?)
7 Dynamic Capabilities Framework - Terminology Factors of productionUndifferentiated inputs available in disaggregate form in factor marketsLacking firm-specific componentResourcesFirm-specific assetsDifficult to imitateDifficult to transfer among firmsOrganizational routines/competencesDistinctive activities when firm-specific assets are assembled in integrated clustersCore competencesCompetences that define a firm’s fundamental business as coreDynamic capabilitiesThe firm’s ability to integrate, build and reconfigure internal and external competences to address rapidlychanging environmentsProductsFinal goods and services produced by the firm based on utilizing the competences that it possesses
8 Dynamic Capabilities Framework - Market and Strategic Capabilities Where is the foundations upon which distinctive and difficult-to-replicate advantages can be built, maintained, and enhanced?Identify “what is NOT strategic” ?Homogeneous product, firms that undergirds competitive advantage, why?- Distinctions between markets and internal organizations.- Firms are domains for organizing activity in a nonmarket-like fashionEntrepreneurial activity cannot lead to the immediate replication of unique organization skills through simply entering a market and piecing the parts together overnight – replication takes time
9 Dynamic Capabilities Framework – Process of the (Process, Positions and Paths) Organizational and Managerial ProcessesCoordination/integration (a static concept)Internal and externalOften display high levels of coherenceThe frequent failure of incumbents to introduce new technologies results from the mismatch oforganizational processesLearning (a dynamic concept)A process by which repetition and experimentation enable tasks to be performed better and quicker,and enables new production opportunities to be identifiedReconfiguration and transformationFirms must develop process to minimize low pay-offThe ability to scan the environment, to evaluate markets and competitors, to quickly accomplishreconfiguration and transformation ahead of competition
10 Dynamic Capabilities Framework – Position of the (Process, Positions and Paths) Technological assets: Ownership protection and utilization of technology assets are key differentiators among firmsComplementary assets: Typically lie downstreamFinancial assets: what a firm can do in short order = F(Balance Sheet)Reputational assets: a summarize of infor. about firms andStructural assets: The formal/informal structure of organizationsInstitutional assets: Public policy; institution a critical element of the business environmentMarket (structure) assets: Product market position, important but often overplayedOrganizational Boundaries: tech; complementary asset, coordination
11 Dynamic Capabilities Framework – Paths of the (Process, Positions and Paths) Path dependencies – F(current position, the path ahead)1, “History matters.2, Learning is a process of trial, feedback and evaluation.transaction and production specificpast investments and routines constrain the firm’s future behavior3, The “lock-in” degree caused by switching cost = F(user learning, repidity of tech change; amount of ferment in the competitive environment, etc. )Technological opportunitiesTech opportunities not completely exogenous to industry; can be firm-specific; firms looking at different choicesAssessmentFirm – a sum of its parts; shift in environment = serious threat
12 Dynamic Capabilities Framework - Reliability and Imitatability of Organizational Process and PositionsReliability1, Involves transferring or redeploying competences from one concrete economic setting to another.2, Competences and capabilities and the routines they rest on, are difficult to replicate.3, Routines and competences - attributable to local or regional forces that shape firms’ capabilities at early stages in theirlives4, Two types of strategic value flow from replication: a) the ability to support geographic and product line expansionb) the indication that the firm has the foundations in place forlearning and improvementImitation1, If self-replication is difficult, imitation is likely to be harder – factors make replication harder make imitation harder2, Barrier impedes imitation – Intellectual property rights protection, e.g., patents, trade secrets, trade-marks, trade-dress3, Should not over estimate the overall importance of intellectual property protection.4, Use “Appropriability” to measure the ease of imitation. A = F(ease of replication; the efficacy of intellectual propertyrights as a barrier to imitation)
14 Conclusions Efficiency vs. Market Power Except in special circumstances, too much “Strategizing” can lead firms to underinvest in core competences and neglect dynamic capabilities and thus harm long-term competitiveness.Normative Implications: capabilities approach tends to steer managers toward creating distinctive and difficult to imitate advantages and avoiding games with customers and competitorsUnit of Analysis and Analytic focus - in capabilities/ resources/ conflict framework, strategy analysis must be situational.Strategic Change – Competitive/conflict framework see strategic choice occurring with relative facilityEntry Strategy – “Resources/ capabilities framework” “entry decision” “competences, capabilities and competition ”Entry Timing - “Resources/ capabilities framework” “interaction between specialized assets and rivalry”Diversification - “Resources/ capabilities framework” meritorious; Conflict framework more permissiveFocus and specialization – Capabilities framework, internal process, F(assets, how to play, how to deploy and redeploy)Complex problems are likely to benefit from insights obtained from all of the paradigms. The trick is to work out which frameworks are appropriate for the problem at hand.
15 Future ResearchFurther theoretical research needed to tighten the frameworkEmpirical test needed to help people understand how the framework worksSuggestions from the Author:Strategy researchers cooperate with researchers in the fields of Innovation,Manufacturing, Organizational Behavior and Business History.