Dynamic Capabilities have garnered more than 120,000 publications in Google Scholar since their inception, highlighting their rising significance in strategic academic writings.

In the past, companies became competitive by possessing and sustaining a “bundle” of resources that were considered “more special” than those of their competitors.

However, in today's business environment, achieving superior performance necessitates creating specific integration capabilities based on the renewal and recombination of strategic resources. These are known as Dynamic Capabilities.

Though this approach may seem new, it was first adopted by Schumpeter in 1934 with his economic theory of "creative destruction."

Below are some characteristics of dynamic capabilities and actions that should be on the agenda of every CEO (or at least those who like to talk about sustainable competitive advantage):

Dynamic Capabilities Help Companies Break Free from Historical Dependencies

Every organization has characteristics inherited over time through its social relations and assimilated values. For example, many companies are known for their slow internal processes, which negatively impact their "core business."

Dynamic capabilities help companies break away from these path dependencies by recombining resources using transformational methods.

They Are Based on "Learning by Doing" Rather Than "Learning Before Doing"

In highly volatile markets, dynamic capabilities are defined as simple, experimental, and based on tacit (ad-hoc), interactive (non-linear) knowledge, supported by fragile processes with low predictability potential.

This leads to a contingency approach, depending on the type of business environment. In highly turbulent markets, dynamic capabilities are developed through the recombination of resources and the creation of real-time knowledge for solving specific problems.

This change in organizational culture can be realized through agile methods, which emphasize delivering the product over extensive documentation, the latter being created only after having "ex-post" consensus.

They Strongly Depend on Managerial Actions

This conceptual model emphasizes the role of top management in creating mechanisms to incentivize the development of dynamic capabilities.

The critical mass of empirical studies identifies several factors:

• Creating real-time information systems
• Encouraging cross-functional (matrix) organizational relationships and less hierarchical structures
• Promoting intensive communication among people involved in the technology creation process (shared physical environments and internal social networks are good examples)
• Creating continuous improvement mechanisms to reward employees who discover optimization in business processes (like the total quality programs of the 1990s)
• Establishing mechanisms for exchanging experiences and transforming tacit knowledge into explicit knowledge
• Promoting a corporate mentality based on transparency and openness to change (as the quality master said, "be hot or cold, but not lukewarm")

An example of this is the cultivation of emerging technologies that are not immediately applicable and may not be effectively applied in the long term. The goal is to create an environment conducive to the evolution of organizational capabilities, letting the market dictate the pace.

Finally, extremely volatile markets tend to intensively promote the development of strategic organizational capabilities. In markets with moderate dynamism, greater managerial incentive is necessary for their formation and growth.

Leveraged by Complementarity and Co-Creation/Co-Specialization

In recombining existing resources to face external threats, value is created through the co-creation and complementarity of these assets. For example, multidisciplinary teams working together in a Scrum DevTeam.

Fostered by Mission-Critical Clusters

While it is difficult to change the organizational culture as a whole, it is possible through mission-critical clusters. These structures promote changes from the inside out, as seen in digital transformation areas managed by agile methods in several companies.

We can visualize this as a large circle representing the company in its traditional form, with smaller circles inside representing the "clusters."

Strong Relationship with Market Research/Shaping

Dynamic capabilities are developed when companies encourage their internal groups to engage in market research and development.

To learn more:

• Jain, V. (2008). A framework for sustainable ERP value. Doctoral Dissertation, Faculty of School of Business, The George Washington University.
• Teece, D. J. (2007). Explicating dynamic capabilities: the nature and micro-foundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319-1350.