The sources of dynamism in dynamic capabilities

Research Summary We develop a multi‐level theory of dynamic capabilities (DCs) that explains resource dynamics by giving a central role to persons and interpersonal interactions rather than to abstract, firm‐level entities. Our theory integrates the contrasting approaches to DCs in individual‐, interpersonal‐, and organization‐level scholarship. Existing organization‐level approaches portray DCs as collective endeavors but do not specify how they emerge and operate within organizations, while micro‐foundational approaches illuminate actors’ contributions but reduce a firm's DCs to the cognitions and actions of a few top managers. Our integrated theory instead explains DCs as effortful social accomplishments emerging from individual employees’ capacity to leverage interpersonal relationships conducive to productive dialogue. The framework we propose offers new ground for understanding how DCs can be sources of sustainable competitive advantage. Managerial Summary How can firms navigate the transformations that relentlessly raise new threats and opportunities in dynamic environments? We suggest that firms develop dynamic capabilities to navigate change when their employees are connected through high‐quality relationships, empowering their innovative potential. Strategic adaptation is possible when people are given the opportunity to act, think, and feel creatively while performing tasks, thus envisioning opportunities to improve how the firm operates. This ability supports sustainable, firm‐level innovation when employees are connected through interpersonal relationships founded on constructive dialogue. Dialogue allows participants to advance and accept proposals for change even in the presence of conflicting interests and viewpoints. Managers may therefore enhance their firm's capacity for change by fostering individual integration and developing contexts that facilitate dialogue and constructive opposition.