Dynamic Capabilities Lecture PDF

Strategic Management UMSD7T-15-3 Study Unit 4 Dynamic Capabilities Signposting  House Keeping  What we know So Far  Dynamic Capabilities  Sensing, Seizing and Transformation  Case Study - Samsung  Critique of DC House Keeping  First Test to be done by today at 17:00 What we know...

Strategic Management UMSD7T-15-3 Study Unit 4 Dynamic Capabilities Signposting  House Keeping  What we know So Far  Dynamic Capabilities  Sensing, Seizing and Transformation  Case Study - Samsung  Critique of DC House Keeping  First Test to be done by today at 17:00 What we know so far “Outside In” “Inside Out” Porter’s View Barney’s View SCA Dynamic Capabilities  Series of Temporary Advantage RBV Advantage Time RBV: Competitive advantage is obtained through a set of resources that a firm possesses. Assumption is that the advantage provided by a resource does not fade over time…  “Dynamic Capabilities” Teece and Pisano (1994) extend RBV with the concept of “dynamic capabilities”: “… the firm’s [consistent] ability to integrate, build, and reconfigure competences to address rapidly changing environments (Teece & Pisano 1994) “Applying core competencies sooner, more astutely (intelligently) and more fortuitously (successfully) than others is source of competitive advantage in high velocity (dynamic) markets” Enables to gain a sequence of temporary competitive advantages  Series of Temporary Advantage RBV Advantage Dynamic Capabilities: Advantage of any resource is temporary in a rapidly changing environment. Firms need to move on and create or find new sources of advantage. Time Advantage Dynamic Capabilities Time Need to develop consistent and repeatable processes and routines The Challenge Remember: Strategy is about the long term. We (as managers) do not want to leave anything to chance. While competencies provide competitive advantage, it remains temporary. Hence, we must have formal mechanisms to make sure that our mix of core competencies does not become obsolete. In sum, we need to be able to: o Generate and absorb knowledge (innovate, learn) to find new competencies and how to apply them. o Manage and deploy competencies we have appropriately. Sensing, Seizing & Transforming  Sensing, Seizing, Transforming Specific formal mechanisms and processes in the management and development of the portfolio of competencies Dynamic Capabilities are made up of three types of routines: “Sensing” “Seizing” Learning Managing Core Consistent routines that generate and absorb knowledge Competencies “Transforming” Reconfiguring Based on Teece and Pisano, (1994) and Wang and Ahmed (2007)  How does an organisation “learn”? Insight and ideas initially occur to individuals and then are absorbed by the firm. g a nnin Exp S c l or a t i on Individual (e.g. Experiences, Intuition) l i s a tion S ocia Group s a tion a l i (e.g. Dialogue/adjustment) ti t ution Ins Exp l oi t Organisation atio (e.g. policies/routines/ n standards/patents) Based on: Crossan et al (1999) and Nonaka (1995) March (1991)  So… how do organisations ensure that they systematically learn? - By maximising individual exposure to learning opportunities (Internal/External e.g. alliances, secondments, hiring new staff and development, external Sensing scanning) - By facilitating knowledge articulation and sharing via dialogue (e.g. communication, conferences, project teams, forums, staff transfers, strategy process) - By enabling the codification of learning (e.g. organisational structures, specialist teams, ‘living’ policies and procedures)  How does an organisation “learn”? Insight and ideas initially occur to individuals and then are absorbed by the firm. g Sen nnin Exp sin S c a g l or a t i on Individual (e.g. Experiences, Intuition) l i s a tion S ocia Group s a tion a l i (e.g. Dialogue/adjustment) ti t ution Ins Exp Sei l oi t Organisation zi n a Tra g & t i on (e.g. policies/routines/ ns f standards/patents) orm i ng Based on: Crossan et al (1999) and Nonaka (1995) March (1991)  Managing and allocating Specific formal mechanisms and processes in the management and development of the portfolio of competencies Dynamic Capabilities are made up of three types of routines: “Sensing” “Seizing” Learning Managing Core Managing competencies that you have, as effectively as possible. Competencies “Transforming” Reconfiguring Based on Teece and Pisano, (1994) and Wang and Ahmed (2007)  Challenge of Corporations Challenge of focusing on competencies in typical SBU structures Management Management mustfocus focus on in traditional competencies firm across SBUs HQ SBU 1 SBU 2 SBU 3 SBU 4 End End End End Market Market Market Market 1 2 3 4 Can result in underinvestment in competencies, imprisoned resources and bounded innovation and prioritisation Source: Prahalad and Hamel (1990),  What are ways to manage and allocate competencies systematically? Clear internal formal coordination processes - Organisational structures that balance control and flexibility e.g. Strategic architecture, committees, networks… Seizing - Processes for allocating competencies and resources to exploit new market opportunities e.g. venturing, allocation process, product development - Encouraging aligned behaviour e.g. incentive and decision systems, formal and informal communication, culture, HRM systems  Transforming and reconfiguring Specific formal mechanisms and processes in the management and development of the portfolio of competencies Dynamic Capabilities are made up of three types of routines: “Sensing” “Seizing” Learning Managing Core Competencies About renewal. Consistent routines to create Adding, transferring, or add new competencies shedding… competencies and dispose or remove old competencies. “Transforming” Reconfiguring Based on Teece and Pisano, (1994) and Wang and Ahmed (2007)  How do firms systematically transform their portfolio of competencies? Transformational routines required for consistent “unlearning” and adoption of new mindsets and knowledge Transforming A mix of incremental and step change includes formal processes to “add” and integrate new competencies e.g. R&D, strategic alliances, M&A Managers need to see the need to change to overcome inertia. This may include major organisation design, culture and leadership change Source: Volberda et al (2001), Ambrosini et al (2009) and Sune and Gibb (2013) How to How To When developing strategy using dynamic capabilities or analysing a firm you are look for specific, deliberate and consistent routines/processes operating in the organisation You can’t infer their presence as a result of the firm (say) innovating. You need to identify and evidence the sensing, seizing and transforming routines specifically. Remember, dynamic capabilities act on the resource and competency portfolio of the firm and so are not part of any one competency Be careful not to mix up competencies and dynamic capabilities (e.g. R&D is better seen as a DC as in most casesNB: Remember a R&D in a full strategic competency analysis will not passyou will nottest). a VRIO just use one theory and so it is OK to leave aspects of the firm to another analysis What to look for? When assessing the firm from a in the context of dynamic capabilities perspective you are looking for evidence that the firm  has deliberately put in place  a comprehensive set of repeatable processes/ mechanisms  to manage, deploy and develop its portfolio of competencies and resources. Common mistakes Dynamic capabilities act on the mix of competences and resources – they are not part of one resource or competency. You need to identify the specific, deliberate process. You cannot claim the firm uses dynamic capabilities just  One Take of How To Sensing Seizing Learning Managing Experimentation and absorption Co-ordination Learning Processes (internal and Values and behaviours Core E.g. Strategic external) E.g. HRM, Partnerships, Market Architecture, Strategic Scanning, forums, networks planning, Incentives, allocation committees Competencies Transforming Reconfiguring Capacity to add and discard resources e.g. R&D, Alliance Function, M&A, culture and organisational change Samsung Case Study  Samsung: Organisational Structure Chairman Corporate HQ (“Strategy Group HQ Office) Samsung Samsung Samsung Samsung Major Affiliate SDI Electronic Electro- Display Company s Mechanics NB: as of Dec 2013 Samsung had 75 domestic affiliates Semi- Mobil TV & Major Divisions Conductor Phones Home s Appliance s Source: Song et al (2016)  Samsung: Dynamic Capabilities Traditional Chaebol (Family Business) Global Top Tier Group In-house technology forums and conferences Driven by Co-opetition Technology scanning (e.g. Silicon Valley R&D center and partners) Dual Sourcing In depth market research focused on fashion HQ resource allocation Variety of HRM practices (e.g. Transfers to/from HQ Semi-continuous asset and between affiliates and divisions orchestration Compensation and incentive Sensing Seizing schemes Development task forces Project secondments Co-innovation Group coordination scheme HR processes (e.g. Loyalty reports, performance evaluation) Parallel development process (R&D) “Co-operation” culture change Constant restructuring M&A, JVs and Licensing Did Apple gained early advantage on competencies but Source: Song et al (2016) Samsung overtake with dynamic Growth in Samsung Market Share (Smart-Phones) Critique of Dynamic Capabilities  Summary  Dynamic capabilities are about deliberate and specific repeating processes that manage and renew a firm’s resources and competencies  They provide sustainable competitive advantage through the organisation continually generating new resource advantages  Series of temporary competitive advantage generated by consistent processes to create, deploy and renew the firms resources and competencies (e.g. specific routines in internationalising, cooperation, knowledge management, resource allocation)  Three types of dynamic capabilities (Learning, Managing Transforming) where firm must put in place formal processes (you need to be specific)  Need to identify/put in place specific deliberate routines to show presence/develop dynamic capabilities  Positioning the Literature Advantage Advantage Time Time Single KBV Dynamic Capabilities Competencies Resources Barney (1991) Prahalad and Hamel (1990) Teece and Pisano (1994) Critique of dynamic capabilities  Need to define carefully otherwise everything is a dynamic capability!  As dynamic capabilities are simply processes and routines… what stops others doing the same thing? Can you not always be better in their application than your competitors?  Therefore… isn’t the advantage still based on the resources you possess. So need RBV theory?  OR does it require every aspect of the organisation to be aligned? So Porter’s activity theory?