The concept of dynamic capabilities highlights  organizational and managerial competences. Key ingredients of dynamic capa- bilities include organizational processes directed toward learn- ing and innovation, the basic manner in which a business is designed, as well as the decision frames and heuristics  that inform firms’ investment choices over time. Once assets come within the orbit of management rather than the market, their effective utilization and orchestration becomes essential. Indeed, orchestration directed at achieving new combinations and coalign- ment of assets is central to the dynamic capabilities framework. Such orchestration requires astute decision making and entre- preneurial capacity. Managers play a critical role in such orches- tration and therefore have particular importance for dynamic capabilities.

Dynamic capabilities of all types perform an economic func- tion: they affect how well business enterprises function within an economic system. An analysis of dynamic capabilities would be incomplete if it did not address this economic function. In this chapter, we analyze what economic theory and logic does and does not tell us about (strategic) managers in general and the asset orchestration function that they perform in particular. We also suggest promising directions for an economic theory of the firm that incorporates the dynamic capabilities of managers in a central way. This economic approach to understanding the managerial processes that underpin dynamic capabilities comple- ments the following chapter, which focuses on organizational research on managerial and organizational processes. Together these two chapters provide a backdrop for the empirical analyses of managerial and organizational dynamic capabilities in subsequent chapters.

Source: Teece David J. (2009), Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth, Oxford University Press; 1st edition.

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