Organization Architecture and Dynamic Capabilities: Network Microfoundations in Dynamic Markets

This paper contributes to dynamic capabilities research by investigating how features of organization architecture provide a basis for superior firm performance and sustainable competitive advantage in dynamic markets. Using a simple model of organization architecture composed of networked employees with distinctive knowledge and dynamic markets composed of a flow of heterogeneous opportunities, I explore how knowledge mobilization mechanisms which leverage network ties – transfer, collaboration, and recombination – underlie dynamic capabilities. The paper investigates how these network mechanisms enable firms to outrace their competitors in the execution of heterogeneous opportunities. Existing theory generally predicts that the performance of these substitute network mechanisms increases as market dynamism increases, but produce unsustainable competitive advantages under imitative conditions. By contrast, I find distinct increasing and inverted U-shaped performance effects of unpredictability and complexity, and a complementary impact of using transfer and recombination mechanisms together. These insights clarify how to design dynamic capabilities and where to apply them for maximum performance. A final analysis indicates that recombination can support sustainable competitive advantages when opportunities are highly complex or highly unpredictable, suggesting a distinct organizational architecture that underlies dynamic capabilities as viable long-term strategy in dynamic markets.