Making Dynamic Capabilities Actionable in Entrepreneurship and

Strategic Management Research

Chair: Alain Verbeke, University of Calgary

Speakers: Shaker Zahra, University of Minnesota

Mary Crossan, Western University

Robert Hoskisson, Rice University

Maurizio Zollo, Bocconi University

Making Dynamic Capabilities [DCs] Actionable

Shaker A. Zahra

Carlson School of Management

University of Minnesota

Banff, Canada

Agenda

• A growing and vibrant body of research

• However, accumulated research findings do not

translate into meaningful managerial action.

• I will cover 4 ways which can help make DC research

more actionable.

– By actionable, I mean making sure that our research is

accessible and useful, while rigorous.

– This will require change in focus of our research.

To Make DCs Actionable,

Research Should Answer 4 Questions

• What makes certain capabilities dynamic?

• When and how DCs diffuse? What

consequences?

• What are the outcomes of DCs?

• How do managers activate DCs?

Q1: What Makes Capabilities Dynamic?

• Research has attempted to separate ordinary from

dynamic capabilities. Yet, it does not tell us much

about what makes certain capabilities “dynamic.”

• Existing research highlights 2 related ideas:

– A major outcome of DCs is systematic organizational

change.

– DCs [themselves] need to change to sustain this change.

• This suggests my 1st question:

When & how does the change in DCs happen?

Which Change Counts?

• A serious problem in existing longitudinal research:

Researchers equate change over time with DCs

– This captures the magnitude & direction of change

o DCs mean something qualitatively different: change withinfirms over time enhancing adaptation.

• Capturing this type of change is complicated because:

– Companies retain portfolios of capabilities

– These capabilities change, with serious implications for performance and adaptation

• Change occurs at different rates

• It also occurs in different sequences

What Determines the Upper Limits of DCs’ Evolution?

• This raises a 2nd question:

Are there upper limits to this dynamism?

– We know DCs change: they morph, mutate, evolve, decay, lose relevance, etc.

• What determines the upper limits of dynamism?

– The answer lies in managerial action:

• Managers’ entrepreneurial capabilities

• Organizational processes

Q2: Diffusion of DCs

• Strategically valuable DCs are:

– Idiosyncratic

– Organizationally embedded

• Diffusion reduces firm-specific advantages derived

from DCs

• Some DCs remain stationary; others diffuse:

― Within/across organizations

― Within/across industries

DCs Diffusion and Advantage

• To help make DCs actionable: We need to determine which they diffuse, how and when– and with what consequences?

• Factors we could examine include:

― DC characteristics

― Context

― Interaction of characteristics * context

― Processes associated with diffusion

― Consequences of this diffusion for:

o DCs themselves

o Organizations

DCs’ OUTCOMES

• The link of DCs to performance is confusing and

problematic----are we only referring to successful

change as an outcome of DCs?

• Studies highlight the profound effect of the context

Q3: What are the Outcomes of DCs?

DCsOrganizational

Outcomes

Context

Examine the Implications of Change

in DCs on Context

DCsOrganizational

Outcomes

Evolutionary

Fitness

• “Evolutionary Fitness” (Fit with the internal and external context) is

crucial to determining DCs’ outcomes [Helfat et al., 2007]

Implications: Examine the Implications of Change

in DCs on Context

• We should also consider the other side of the equation:

Changes in DCs could profoundly affect internal & external

contexts

DCs Context Outcomes

DCs Outcomes Context

Other Outcomes of Change in DCs

∆

DCs

∆

Strategy

∆

Industry

Dynamics

A

∆

DCs

∆

Entrepreneurial

Initiatives

∆

Firm ScopeB

∆

DCs

∆

Performance

∆

Power Relationships

Within TMTC

∆

Competitive

Advantage

∆

DCs

∆

Core CompetenciesD

Q4: How do Managers Activate DCs?

• A persistent concern about the utility of DC

research is the lack of systematic attention

to how managers activate DCs.

• We need to examine:

– Managerial & Organizational Processes

– Microfoundations

– Entrepreneurial Function

– Dynamic Managerial Capabilities

Organizational & Managerial Processes

Underlying DCs: A Few Questions!

Managerial

Decision

Making

• How do managers identify areas in which DCs are

needed?

• How & when do the interactions between

autonomous and induced behaviors influence DC

development?

― These interactions occur within & across

organizational levels

― Have spatial, temporal and political levels

• How are DCs selected?

• How are different DCs integrated? Where? By

Whom?

Studying Organizational & Managerial Processes

• How do Managers deploy their DC portfolios?

― Sequencing/timing

― Learning from deployment

― Revising, Upgrading & Renewing DCs

• This means we need to examine the microfoundations of

DCs

3 Clusters of Microfoundations

• Each cluster is supported by a set of organizational processes

Sensing Seizing

Transforming

• Microfoundations refer to individual cognitions, attitudes, beliefs,

motivations, and behaviors that create and influence macro

structures (e.g., firms, organizations, markets & networks) and

other social economic activities [Van de Ven, 2010].

Studying Microfoundations Makes DCs Actionable

• How will this make DCs actionable?

– How the different forces within the organization, unfolding at different, shape and define DCs.

– Greater clarity about role of different agents: Who does what & why

• Role of managers and related skill sets

– How does knowledge conversion occur in the DC creation processes?

• Micro-processes

• Integration & pattern weaving

• How do routines become DCs

Implications: The Role of the Entrepreneurial Capability

• Entrepreneurial capability:

– Transforms micro-processes into focused entrepreneurial action:

o Links strategic and entrepreneurial action

• This capability is dispersed throughout the organization.

– Thus, coordinative mechanisms are needed to ensure timely integration

that gives substance to DCs

• Define these mechanisms

• Examine how these mechanisms

change over time

• Determine if they vary across levels

Making DC research

more actionable

requires us to:

Dynamic Managerial Capabilities [DMCs]

• Adner & Helfat [2003] introduced and defined DMCs as those “capabilities with which managers build, integrate, and reconfigure organizational resources and competences.”

• They propose that DMCs are rooted in several underlying factors that separately and in combination, influence managers’ strategic and operational decisions:

Managerial

Human Capital

Managerial Social

Capital

Managerial

Cognition

Little research on managers has analyzed these 3 factors together

Implications: Making DMC Research Actionable

• Connect DMCs to the firm’s entrepreneurial capability; this is

probably where the impact on organizational change is likely to

be most visible

• Studying DMCs also means greater attention to internal context.

• DMCs and their role in different types of companies need

greater attention

– Contextualization is essential

Conclusion

• An impressive body of literature exists on DCs.

– Riddled with assertions, with little empiricism

– Relevance and practical usefulness is questionable

• To make DCs’ research useful and actionable, I have focused on 4 questions:

– What makes certain capabilities dynamic?

– When and how do DCs diffuse? What consequences?

– What are the outcomes of DCs?

– How do managers activate DCs?

Thank You

Making Dynamic Capabilities Actionable: Insights from OL, Improv

and Leadership

Dr. Mary Crossan

Paul McPherson Chair in Strategic Leadership

Distinguished University Professor

Ivey Business School

mcrossan@ivey.ca

Premise & PurposeMake DC research more actionable from both an empirical and practical sense by relying more heavily on other literatures such as OL, Improv and leadership.

Why? – Strategic Renewal for Sustained Excellence

Much at stake in organizations and society!

- Micro-processes and

interrelationships between learning

at the I/G/O levels

- OL system and infrastructure:

Alignment between strategy,

structure, culture, procedures and

system

- Learning from outside

the firm (AC) and

inside the firm

- Knowledge types

- Knowledge-based-view of

the firm

- IT solutions and tools for managing

explicit knowledge

- Social processes for managing tacit

knowledge

- KM strategy and tactics

- Resource-based-view of the firm

- Link between DCs and firm performance, through

operational capabilities

- Emphasis on environmental dynamism, and the

ability to change routines and reconfigure resources

as the ultimate source of competitive advantage

- Learning

as knowledge

processes

- Cognitive & behavioral

aspect of learning ,

knowledge , & knowing

- Communities of practice

- AC as the learning

of external knowledge

- KM’s role

in the development

of DCs & operational

capabilities

- KM as a first-order

capability or DC

- AC dimensions as knowledge

processes

- Learning as a

second-order

capability or meta-

capability

- AC as a dynamic

capability

Learning processes underpinning changes in routines and resources

OL KM

DC

Vera, Crossan, Apaydin, A Framework for Integrating Organizational Learning, Knowledge

Capabilities and Absorptive Capacity, Handbook of Organisational Learning and Knowledge, 2011

OL may be the only SCA (DeGeus, 1988)

OL: Multi-level Dynamic Strategic Renewal Process

LEVEL PROCESS INPUTS/OUTCOMES

INTUITING

Experiences

Images

INDIVIDUAL Metaphors

INTERPRETING

Language

Cognitive Map

GROUP Conversation/Dialogue

INTEGRATING

Shared Understandings

Mutual Adjustment

Interactive Systems

ORGANIZATION

INSTITUTIONALIZING

Routines

Diagnostic Systems

Rules & Procedures

Crossan, Lane, White, Academy of Management Review, 1999

PerformanceEmployee

SatisfactionClient / Customer

Satisfaction

Financial

Performance

Leadership Behaviours

Learning Stocks Learning Flows

Personal Leadership

Organizational Learning Management System

Systems and

Procedures

Support Work

Strategic

Alignment

Employee

Capability

Teams and

Team

Processes

Ideas Positively

Impact Organization

Feed-forward

Flow

Feed-back

Flow

I G O

G

O

I

Leadership, Learning and Performance

Adapted from Crossan & Berdrow SMJ, 2003

Bontis, Crossan & Hulland, JMS, 2002

Why Improvisation?PLANNINGImprovisation involves reworking

precomposed material and designs

in relation to unanticipated ideas

conceived, shaped, and transformed under the

special conditions of performance, thereby

adding unique features to every creation.

MEETS

OPPORTUNITY

IN

REAL-TIME

Paul Berliner, Thinking In Jazz: The Infinite Art of Improvisation,

The University of Chicago Press Ltd., Chicago, IL, 1994, page 241

Improvisation

ExpertiseTeamwork

Quality

Experimental

Culture

Creativity

H1+ H2+ H3+

Spontaneity

Real-time

Information

&

Communic.

H4+

Memory

H5+

Innovation

(frequency & Speed)

Vera & Crossan, Organization Science (2005)

Improvisation and Innovation

Character & Competence

Performance

Leader

Competence

Naturally-occurring

learning opportunities

External context:

- Meaningful life

experiences

Internal context:

- Meaningful

interpersonal

relationships

- Meaningful

communities of

practice

High Entanglement

Character-

Competence

Entanglement

P2+

P3+

No Entanglement Leader

Competence

Low Entanglement Leader

Character

P1+

P4+

P5+

Elevating character alongside competence for sustained excellence

Sturm, Vera and Crossan, Leadership Quarterly 2017

Crossan, Byrne, Seijts, Reno, Monzani, Gandz, JMS, 2017

Conclusions

Organizational Learning particularly suited to:

• Bridge micro and macro – individual to organization(s),

• Handle dynamic sensemaking processes

• Embrace tensions/challenges such as:

• Ambidexterity - exploration and exploitation

• Reconfiguration and transformation

Improv reveals real-time processes of co-creation and what it takes,

individually and collectively to do it well.

Leader character – Recasts our understanding of the “agent”.

Tremendous promise to challenge current assumptions and identify a

critical missing link in most research streams.

Dynamic Capabilities: The Environmental Influence of Institutions and Factor Markets

Robert E. Hoskisson

Rice University

36

The Rise of Emerging Market Multinationals

(Source: McKinsey, 2013)

37

37

R&D

Parts

modulesSales

Sales

service

Assembly

Added

values

Profit

high

Profit

Low

Profit

high

Value Chain activities

Variation in Institutions and Factor Markets (Infrastructure)

(Hoskisson, Wright, Filatotchev, & Peng)

Country resource environments provide two kinds of resources:

Factor resources (e.g., natural resources, infrastructure, etc.) for transformational activities

Institutional resources (e.g., efficient government bureaucracy, formal and informal) for transactional activities

A New Typology of Emerging EconomiesIn

stit

uti

on

al D

eve

lop

me

nt

Low

Hig

h

Infrastructure and Factor Market Development

Low High

TraditionalEmerging

Economies(e.g.

VENEZUELA)

Mid-RangeEmerging

Economies(e.g. BRAZIL,

RUSSIA)

Mid-RangeEmerging

Economies(e.g. INDIA)

Mid-Range Emerging

Economies(e.g. CHINA)

NewlyDevelopedEconomies

(e.g. SOUTH KOREA)

Quadrant 3 Quadrant 4

Quadrant 1 Quadrant 2

Clustering of 64 Emerging Market Countries

noted by Hoskisson, et al, (2000 AMJ Special Issue)

Development of

Market

Institutions

Low High

Development

of Factor

Markets

Low

High

FOCUSEDPRODUCT

DIVERSIFICATIONSTRATEGY

BROADPRODUCT

DIVERSIFICATIONSTRATEGY

Home Country Development and Diversification

Example Study Using Institutional Economics Wan & Hoskisson (2003 AMJ)

Per

form

ance

Product Diversification

Home Countries

with Weak Market

Institutions (+)

Home Countries

with Strong

Market

Institutions (-)

Example Study Using Institutional Economics Wan & Hoskisson (2003 AMJ)

Per

form

ance

Outbound International Diversification

Home Countries

with Strong Market

Institutions (+)

Home Countries

with Weak Market

Institutions (-)

Institutions

Strategic

Factor

Markets

EBM

Industry

Structure

Resource

Heterogeneity

IOE

RBV

Competitive

Advantage

An Integrative Model of Competitive Advantage

(Kim & Hoskisson, 2015 AIM)

Resource Environmental Conditions and StrategiesDevelopment of Market Institutions

Low High

Low

High

Low Low Characteristics:• Resource and transaction costs are very high• External resources are seriously scarce• Hypercompetition is least likely due to very high

barriers to entry and imitation• The value of internal resources is low in product

markets• Countries: Russia, Venezuela

• Resource-oriented strategies:• The need to develop dynamic capabilities is low• Interventions in resource environments are most

likely to help create and sustain a competitive advantage

Development

of Factor

Markets

High High Characteristics:• Resource and transaction costs are low• External resources are abundantly available• Hypercompetition is most likely due to low barriers

to entry and imitation• The value of internal resources is very high in

product markets • Countries: U.S., Germany•

• Resource-oriented strategies:• The need to develop dynamic capabilities is very

high• Interventions in resource environments are least

likely to help create and sustain a competitive advantage

Institutions HypercompetitionDynamic

Capabilities

Strategic

Factor

Markets

Shifting Bases of

Competitive

Advantage

Temporary

Competitive

Advantage

Institutional and

Resource Environment

(Country)

Competitive

Environment

(Industry)

Firm Strategy

(Firm)

Environmental Mechanisms Prompting the Need for Dynamic

Capabilities

International Diversification from an Emerging Economy (Kim, Hoskisson, Lee, 2015 SMJ)

47

X2: International

Diversification into Resource-

Richer HostCountries

FirmPerformance

X1:International

Diversification into Resource-

Poorer HostCountries

Strategic Factor Markets

Geographic Diversification into Resource-Poorer Host Countries

Geographic Diversification intoResource-Richer Host Countries