Dr Brian Harney is a lecturer in Strategic Human Resource Management at Dublin City University Business School and Programme Director of the MSc in HRM. His research explores the intersection of strategy and HRM with a particular focus on SMEs and knowledge intensive contexts.
Dynamic capability: A basis for sustainable performance?
While all organisations need appropriate resources to function, it is what organisations do with their resource-base that ultimately determines the nature of their success. In particular, how does an organisation create, nurture and reconfigure its resources to keep in tune with external changes and emerging challenges? How does management leverage the human capital and knowledge-base of employees to foster creative behaviours and encourage constant process improvement? Understanding the ability to refresh, renew and transform extant resources and routines lies at the heart of what are termed “dynamic capabilities”. Once exclusively associated with high-tech firms and fast-paced change, the significance of dynamic capabilities is now more universally recognised, including for public sector organisations as they attempt to grapple with wicked problems, societal challenges, and crisis situations (Osborne and Brown, 2013).
What are dynamic capabilities?
Effective management requires the coordination of an array of internal organisational processes, routines and activities (Andrews et al., 2015). Dynamic capabilities refer to organisation’s internal capability to excel at certain tasks, to continuously reflect and improve, and to anticipate and lead transformative change. Dynamic capability is not about once-off change or transformation, but rather having the processes and systems in place that represent an ability to continuously manage change and deal with challenges in a systematic and on-going fashion. According to one of the key proponents, dynamic capabilities represent “the firm’s ability to integrate, build and reconfigure internal and external competences” (Teece et al., 1997: 516). The notion of dynamic capability brings together innovation, organisational learning, and knowledge management. In essence, it captures the capability of an organisation to interact with its resource-base so as to “reconfigure” and “refresh”existing resources and “create” new ones. This capability enables the organisation to “reflexively revisit” what it does by incorporating feedback, assessing against value delivered and to learn from both failure and success. While precise definition of dynamic capability remains abstract and contested, for many, they represent the organisation’s ability to engage in double-loop learning; challenging the way things have been done, questioning underlying assumptions and working out more effective and efficient ways to realise outcomes. The idea is that such an occurrence is natural and systematically embedded in the “behavioural orientation” of an organisation(Wang and Ahmed, 2007).
Building dynamic capability
If the significance of dynamic capability is recognised, a key question becomes how to create and sustain dynamic capability. Dynamic capability is composed of dual processes. First are processes that focus on exploitation activities centred upon deploying the existingresource-base to maximum effectiveness. While such exploitation is necessary for immediate organisational level success, it is not deemed sufficient for longer term viability. By contrast, exploration involves innovation, proactively engaging with stakeholders and examining future potential, needs and opportunity. The processes of exploration form the core of dynamic capabilities as they are focused on future resource-creation, concentrating on how to create new resources and renew existing resources in line with challenges and changes in the environment.
Building on his seminal definition, David Teece (2007) identifies three key processes, or “micro-foundations”, necessary to build dynamic capabilities: sensing and shaping capabilities; seizing capabilities; and managing threats and reconfigurations(Teece, 2007, p. 1342). Sensingcapabilities are those that enable the organisation to search internally and externally for new opportunities and to be discriminating in analysing and filtering the findings in order to extract maximum potential value. Seizingcapabilities are those which underpin the development of opportunities which are thrown up from the earlier sensing activities. Seizing might involve selecting a new service delivery architecture, managing new platforms and complementarities and managing latent resistance to change. Finally, the third micro-foundation of dynamic capabilities is the management of threats and reconfigurations. This is the orchestration of internal capabilities to enable the required adaptation or development. This involves the development of agile structures of support, new governance arrangements, effective knowledge management, and learning capacities that assist the innovative process and support the development of new knowledge. Some key features of these three micro-foundations, coupled with sample applications are highlighted in the Table below.
Do dynamic capabilities matter in the public sector?
A fundamental challenge in building dynamic capability relates to changing the collective behaviour of employees together with their associated routines, work patterns and daily activities (Fallon-Byrne and Harney, 2015). Irish evidence from public sector managers and employees suggests that organisational interventions to this effect can reap benefits. The national survey of employers in Ireland found that organisational interventions in the form of empowerment-enhancing strategies, learning and positive relationships had a cumulative impact on the likelihood of workplace and outcome innovation, including in the public sector (Watson et al., 2010). A recently completed PhD thesis by Lucy Fallon-Byrne (2013) examining the “microfoundations of dynamic capability for innovation” likewise found a positive impact of these managerial practices as perceived by employees in Irish public sector workplaces. This demonstrated that organisational interventions in the form of empowerment-enhancing strategies, learning, and good management-employee relations were positively associated with both employee outcomes in the form of job satisfaction and commitment, and also broader outcomes such as product, service and workplace innovation. Research has also examined broader structural configurations most likely to be associated with high organisational capability in UK central government departments. The findings suggest the benefits of low structural complexity and consistency in staffing as key attributes associated with high-capability departments (Andrews et al., 2015).
While the precise definition of dynamic capability is subject to continuous academic debate and empirical scrutiny, it is hard to argue with the overall logic of illuminating internal processes. Understanding and nurturing dynamic capability can be a way to foster better and more proactive policy-making, delivered in a manner that is continuously attentive to multiple needs, stakeholder demands and key challenges. The significance of innovation and doing things better or different has been long evoked in the public sector, with little sense of how this may occur or what change may look like. A focus on dynamic capabilities brings forward important insights, opening up modes of questioning such as: how does this organisation learn and unlearn? How is knowledge shared? How are new opportunities and the potential to do things in different ways seized?
At a minimum, a focus on dynamic capability triggers important conversations. Ultimately, it can encourage a (re)examination of whether organisational interventions are appropriately designed to systematically foster much heralded learning, effective delivery and adaptability.
- Andrews, R., Beynon, M., and McDermott, A. (2015) “Organizational capability in the Public Sector: A configurational approach” Journal of Public Administration Research and Theory, Forthcoming, doi: 10.1093/jopart/muv005
- Fallon-Byrne, L. (2013) “Developing the microfoundations of dynamic capability for innovation: a human resource management perspective”, PhD Thesis, Dublin City University.
- Fallon-Byrne, L. and Harney, B. (2015) “Micro-foundations of dynamic capabilities for innovation: A review and research agenda”, Irish Journal of Management, Forthcoming
- Osborne, S., and Brown, L. (2013) “Introduction: innovation in public services” In S.
- Osborne, and L. Brown (Eds.), Handbook of Innovation in Public Services, Edward Elgar Publishing: 1-11.
- Teece, D., Pisano, G., and Shuen, A. (1997) “Dynamic capabilities and strategic management”, Strategic Management Journal, 18: 509-533.
- Teece, D. (2007). “Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance”, Strategic Management Journal, 28: 1319-1359
- Wang, C., and Ahmed, P. (2007) “Dynamic capabilities: A review and research agenda”, International Journal of Management Reviews, 9, 31-51.
- Watson, D., Galway, J., O’Connell, P. and Russell, H. (2010). The Changing Workplace: A Survey of Employers” Views and Experiences, Dublin: National Centre for Partnership and Performance.