Friday, October 30, 2015

Dynamic Capability as Resource

Dynamic Capability is the ability to reconfigure your organization in the way that has the effect of increasing its "variety."

The dynamic capabilities' are defined as: "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments." With the increasing speed of changes and unprecedented uncertainty, dynamic capabilities thus reflect an organization's ability to adapt to changes, build new capability, and achieve innovative forms of competitive advantage given path dependencies and market positions. Do 'Dynamic Capabilities' (DCs) qualify as a business resource? Is DC a firm-specific asset that is difficult if not impossible to imitate?

Organizational Capabilities have outcomes; they collaborate with each other and are enabled by processes: They include resources (manpower and maybe raw materials), processes, technology (systems) required and human capital (talent potential as asset and capital, not just as resources), identify those companies that consistently deliver best shareholder returns do so by focusing hard on the customer and re-designing their operations from the customer back into the operation. The maturity of a business capability would be based on the ability for the capability to deliver on customer needs or to achieve the desired capability outcome, as the digital era is the age of customers.

It's worth noting that being able to delineate between what is a 'resource' and what is a 'capability' is essential to be able to think about strategy in a nuanced and precise way. Without such nuance and precision, the strategy concept is a muddle, one that we see most of the time in organizations and hear about in conversations with the officers and employees who staff them. The psychological and organizational factors get in the way of understanding the critical dimension of true 'digital strategy' that is about disrupting the conventional ways of creating value within established markets. The other building blocks are processes for coordination and integration, guided learning and reconfiguration, and paths (strategy) to vision. Business resources include technological, financial, reputational, market structure and institutional capitals and assets.
#1. Financial capital: Funds from investors and lenders. Examples: borrowing capacity, liquidity, ability to raise equity capital, and sustainable growth rate.
#2. Physical capital: The physical endowments a firm requires. Examples: productive capacity, investment service, dedication to maintenance, the flexibility of fixed assets, technological commitment, access to suppliers.
#3. Human capital: Resources of the individuals who comprise the firm (knowledge, education, training, insights, etc.). Examples: education, training, knowledge, employee commitment, leadership ability, trust, experience.
#4. Organizational capital: Aggregate attributes of those who comprise the company. Examples: loyalty, teamwork, reputation, product innovation, process innovation, speed.

Dynamic Capability is the ability to reconfigure your organization in the way that has the effect of increasing its "variety" - its ability to match variety in the environment where variety is a measure of complexity. Looking at it from a quite different and systemic perspective, Anything that increases the reach, scope, and capability of a resource set is in effect increasing the value of that resource. If you can do twice as much with a given resource, then effectively you have doubled resource, not in its substance, but in its effect. A poor strategy may compromise the effectiveness of dynamic capabilities. A DC might be a resource, but not necessarily so. A DC that is a resource might be a source of competitive advantage, but not necessarily the argument about whether "doing more with less" should be counted as an increase in resource. This blurs the boundary between capability and resource and where you stand on that rather depends on whether you choose to regard resource as "something that is" or as "something that does."

Dynamic business capabilities are more complex in design, with synthetic nature requiring cross-functional collaboration, embedding agility into processes for adapting to the changes. Whether it is a resource or not, DC is not just about “doing more with less,” but more about “doing more with innovation,” with continuous renewal for transformation, and the right set of unique Dynamic Capabilities directly decide the overall organization’s competency, and how well they can make digital transformation, deliver the value to the customers and build long term winning position.


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