The Foundations of Dynamic Capabilities: Strategic Management

The focus of the field of strategic management is on choices with respect to the direction of the evolution of the business enterprise.

It covers subjects of primary concern to senior executives, and to anyone interested in the success and failure of the business enterprise. The field is grounded in practice and exists because of the importance of the subject, and the need for frameworks that can help managers think through business decisions. The field studies the choices enterprises must make in order to continue to survive and prosper in the long run in an environment where it is assumed that there is competition for customers, technology, people, financial capital, and other inputs.

Technological innovation and changing customer tastes are part of the landscape in which strategic decisions are made. Strategic choices include the selection of products and services to offer cus- tomers, the market segments to address, the business models to employ, the appropriate level of diversification, and organizational structures, policies and practices needed to coordinate activities. It is a basic proposition of the field of strategy that these choices are interrelated and should not therefore be made in isolation. The field views the enterprise as both adapting to its environment, and in some cases even shaping that environment.

The assumption adopted in the field of strategic management that the enterprise has meaningful choices, and that managers make a difference, is in contrast to organizational ecology that presumes that path dependencies are so strong that the enterprise simply cannot adapt, and managers are rather helpless in the face of strong technological, market, and social determinism. Instead of adaptation, organizational ecology sees a population of business enterprises that changes in composition over time. Some flourish and others perish while still others are born. Organizational ecol- ogy does recognize strategy, but mainly when choices are made at the time the enterprise is founded.

The strict ecological view is at odds with the field of strategic management and with frameworks that recognize that managers can make strategic (investment) choices, and engage in orga- nizational renewal and transformation. However, change is not automatic or costless, and is often thwarted by various kinds of organizational inertia and decision-making biases. Neverthe- less, entrepreneurs and managers can affect outcomes. This is particularly true when positive feedback situations exist, and opportunities to make value-enhancing cospecialized investments are present. As David (1992) notes, such situations are especially prone to appear at early stages in the development of integrated production and distribution systems.

Strategic management as a field has grown significantly over the past two decades. It has moved closer to getting established as a scientific field, including establishing its own journal and professional society, and gaining some acceptance from other disci- plines (Rumelt et al., 1994). Although the roots of the field can be traced back to the ideas of Sun Tzu, Leo Tolstoy, and Clausewitz, the field really took off in the early 1980s. A research agenda began to emerge around the importance of analyzing competitive forces; and then later around ideas on resources, competencies, and capabilities.1

While borrowing from economics, the field of strategic manage- ment has been eclectic in its employment of economic paradigms because (neoclassical) economics cannot explain a number of phe- nomena that are of interest to scholars in the field of strategic man- agement (such as firm heterogeneity, industry dynamics, entrepre- neurship, and competitive advantage) (Teece and Winter, 1984). Because it is pragmatic, the field of strategic management is also forced to be interdisciplinary. Indeed, the problems addressed in the practice of strategic management require insights from multiple disciplines.

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

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