Dynamic Capabilities describe an organization’s ability to continuously renew, reconfigure, and redeploy resources, processes, and competencies to remain competitive in dynamic markets. The concept was introduced by David J. Teece, Gary Pisano, and Amy Shuen (1997) as an evolution of the Resource-Based View (RBV).
Origin and Purpose
While the RBV explained advantage through unique, hard-to-imitate resources, the question remained: How can firms sustain success in fast-changing environments?
Dynamic capabilities answer this: not the static resource itself matters, but the ability to reconfigure resources over time. Their purpose is to enable organizations to stay adaptive and innovative without losing strategic direction.
Core Elements
- Teece (2007) identifies three fundamental processes:
- Sensing: detecting market opportunities, risks, and technological trends.
- Seizing: capturing opportunities by developing business models, products, or processes.
- Transforming: reshaping organizational structures, routines, and resources continuously.
Supporting principles include:
- Path dependency – prior routines shape future developments.
- Asset orchestration – deliberate recombination and reallocation of resources.
- Organizational learning – experimentation, feedback, and reflection.
Application and Best Practices
- Institutionalizing strategic agility: Dynamic capabilities must become routines. Best practice includes strategy and innovation committees that regularly scan markets and quarterly business reviews with flexible budget reallocations.
- Operationalizing ambidexterity: Dual operating systems allow simultaneous efficiency in core business (exploitation) and exploration of new opportunities (exploration).
- M&A as accelerators: Firms like Google or SAP use acquisitions as learning platforms, not just growth vehicles. Smaller deals test cultural and technological compatibility.
- Hypothesis-driven governance: Advanced organizations rely on hypothesis-based portfolio management, continuously validating, scaling, or terminating investments.
- Leadership practices: Leaders cultivate a learning and failure culture, sharing leadership learning moments and rewarding experimentation regardless of outcomes.
Practice Examples
Apple: repeatedly opened new markets, from iPod to iPhone to services, by combining sensing, seizing, and transforming.
IBM: in the 1990s transformed from hardware into services and consulting.
Netflix: pivoted from DVD rental to streaming and content production, showcasing sensing, seizing, and transforming in action.
BioNTech/Pfizer: sensed mRNA’s potential, seized opportunities via alliances, and transformed supply chains globally during COVID-19.
Toyota: during the semiconductor shortage, highlighted the value of flexible supplier networks and dynamic resource allocation.
Criticism and Limitations
- Conceptual vagueness: seen as a “catch-all” concept – almost any adaptation can be labeled dynamic capability, reducing falsifiability.
- Measurement challenge: unlike resilience or agility, no standard metrics exist to measure dynamic capabilities directly.
- Path dependency paradox: dynamic capabilities aim to drive change but can be trapped by legacy routines.
- Resource intensity: building requires significant investments in scouting, innovation, leadership, and IT.
- Capability trap: over-engineering sensing/seizing can create bureaucratic rigidity, slowing adaptation.
- Limited utility in stable markets: in predictable contexts, the cost may outweigh the benefits.
Integration and Combination
- With resilience and antifragility: resilience secures stability, antifragility leverages disruption, dynamic capabilities translate both into strategic action.
- With Living Transformation®: aligns with transformation as a continuous process applying sensing, seizing, and transforming.
- With Living Strategy: dynamic capabilities serve as the operational backbone of a living, adaptive strategy.
CALADE Perspective
At CALADE, we apply dynamic capabilities as a foundation for systematic adaptability. We help clients design structures and routines that enable continuous sensing, seizing, and transforming. Combined with Living Transformation® and Living Strategy, this builds organizations that treat change not as an exception but as a permanent competitive advantage.
Cross-references to related glossary entries
- Organizational Resilience
- Antifragility
- Living Transformation®
- Living Strategy
- Ambidextrous Organization
- Change Fatigue
- Theory of Constraints (TOC)
- Leading and Lagging Indicators
- ADKAR Model
- Change Curve
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