Understanding dynamic capabilities: progress along a developmental path

The aim of dynamic capabilities research is ambitious: to understand how firmscan sustain a competitive advantage by responding to and creating environmen-tal change (Teece, 2007). As one of the most central and difficult questionswithin the strategy domain, this might well be characterized as the Holy Grailof strategic management. The topical domain of dynamic capabilities, in conse-quence, is as broad and as complex as any in the field. It spans the domains ofstrategy process and content, and involves multiple levels of analysis, from man-agerial decision-processes, to organizational routines, to competitive inter-actions and environmental change. The complexity of the topic is matched,fittingly, by the complexity of the theoretical underpinnings. Undoubtedly, thishas generated some confusion. It is therefore not surprising that the critique ofArend and Bromiley (A&B) in the preceding essay reflects some of this confu-sion. Here, we address this by clarifying the dynamic capabilities concept, inrelation to its development and the challenges faced.We first survey the development path of dynamic capabilities research, anddiscuss the different theoretical bases of this emerging area of scholarship. Thenwe clarify issues regarding the definition of dynamic capabilities and discuss thelink between dynamic capabilities and firm performance. As part of our analy-sis, we address the two main conclusions of A&B regarding dynamic capabil-ities research. The first is that we should abandon the dynamic capabilitiesapproach if it does not ‘quickly develop a theoretical foundation’. The second isthat regardless of the pace of theory development, we should replace theseefforts with ‘work on strategic change tied to fuller theories of strategic organ-ization’. In what follows, we explain why these conclusions are premature andunwarranted. We also address other issues raised by A&B, focusing on the mainissues raised in the body of their commentary.