Dynamic Capabilities and Competitive Advantage

Introduction

The primary problem in the field of strategic management is to answer the question on how firms attain and maintain the competitive advantage. The phenomenon of globalization has resulted in competitive battles fought on a trans-national basis especially in high-technology industries such as information systems services, and software. These globalized forms of competition have established the necessity for an elaborated concept to comprehend how competitive advantage is accomplished.

Competitive Advantage

Multi national organizations like Microsoft, Oracle and IBM are pursuing a resource based strategy of building up useful technology assets, habitually shielded by an assertive attitude by means of intellectual property. Nevertheless, on a regular basis this strategy is not adequate to maintain an important competitive advantage. Successful firms in the global market are quite often those which can exhibit appropriate awareness and positive reaction to the changing business environment.

Fastness and adaptability in innovating products, combined with potential of the management to effectively bring together and reorganize competences both internal and external are features seen in successful firms. Therefore not to the shock of the industry it has been observed that firms which have gathered a huge bulk of priceless technology assets are still lacking the functional capabilities to exploit them.

It is possible that a firm’s competitive advantage is diminished over a period of time. There can be various factors that result in such an erosion of competitive advantage. The two main causes are as below:

• Replicability which is caused by the expansion of the organization internally
• Imitatability which is caused by replication from the competitors

Here lies the significance of dynamic capabilities. Strategists consider dynamic capabilities to be the key to competitive advantage.

Dynamic Capabilities

The ability to achieve new forms of competitive advantage is referred to as dynamic capabilities. The two terms dynamic and capabilities by itself require in depth understanding while studying competitive advantage.

The ability to renovate competences so as to accomplish corresponding with the transforming business environment is referred to as dynamic.

The main characteristics of being dynamic are:

• It requires definite innovation is responding to situation such as the right time to enter the market.
• The timing is vital in such a case.
• In addition when there are swift changes in the field of technology and when the character of prospective competition and market is hard to be ascertained the dynamic nature becomes vital for sustained competitive advantage.

The important function of strategic management in fittingly modifying, incorporating and reconstituting the internal as well as the external organizational skills, resources, and functional competences to correspond with the necessity of a transforming environment relates to the term capabilities.

Thus dynamic capabilities address rapidly changing environment. They suggest an organization's capacity to accomplish new and innovative forms of competitive advantage.