Rbv Is An In Uential Theoretical Framework

Published Date: 02 Nov 2017

Nowadays where the competitive structure is shifting, the dynamic capabilities by which company managers integrate, make and re-configure internal and external competencies to respond to rapidly changing environments become the essence of sustained competitive advantage. The manipulation of knowledge is especially critical in such markets.

Increasing technical innovations is bringing market for new products and services. To survive in this highly evolving market a company much respond quickly. In this paper we discuss about how companies develop the capabilities to succeed in changing times. The role of managers too change in great way. Many say that most of the managers fail because they compete with existing market and hence miss the entry opportunities. However, other argue that managers enter new market only when their company possess the expertise and experience needed to compete effectively.

The dynamic capabilities seeks to identify and categorize the prerequisites for maintaining a sustainable competitive advantage in the market. Since dynamic capabilities are processes embedded in companies, we assume an organizational and empirical lens, rather than an economic and formal modelling. We study the nature of dynamic capabilities and how those capabilities are influenced by market dynamism and evolution over time.

Dynamic capabilities are the earlier institutional and strategic routines by which managers change their resources. Then they gain and shed resources, integrate them together, and combine them back to generate new value-creating plans. Dynamic capabilities are identifiable and specific processes. Dynamic capabilities can integrate resources too. For instance, managers combine their varied skills and functional backgrounds to create revenue-producing product. The dynamic capabilities literature stands third in major capability-based perspectives. Early researches describes these skills as the measure to renew competencies to gain coherence with the changing industrial environment. Other dynamic capabilities fixate on reconfiguration of resources within firms. Transfer processes including routines for replication and brokering are utilized by managers to replicate, transfer, and recombine resources, especially knowledge-predicated ones, within the firm.

Dynamic capabilities are often characterized as

unique and idiosyncratic processes that emerge

from path-dependent histories of individual firms. Yet, while dynamic capabili-

ties are certainly idiosyncratic in their details, the

equally striking observation is that specific

dynamic capabilities also exhibit common features

that are associated with effective processes across

firms. These commonalities arise because there

are more and less effective ways of dealing with

the specific organizational, interpersonal, and

technical challenges that must be addressed by a

given capability. Effective product

development routines typically involve the partici-

pation of cross-functional teams that bring

together different sources of expertise. These

sources of expertise are essential for superior

products because each addresses a unique aspect

of product quality or related production.

functional teams were essential for superior per-

formance. The use of these teams enhanced the

range of information that was available, and eased

the coordination and overlap of manufacturing,

marketing, and design tasks during the course of

the process.

Effective product development processes also

involve routines that ensure that concrete and

joint experiences among team members, such as

working together to fix specific problems or par-

ticipating in brainstorming sessions occur. Such

experiences enhance innovation by breaking down

the thought worlds that arise because people with

different expertise not only know different things,

but know those things differently. Concrete

experiences with others on the development team

create a common experience base and language

that facilitates communication among functionally

distinct people. Dougherty (1992), for example,

studied 18 product development projects in five

well-established U.S. firms including Kodak and

Campbell Soup. She found that common customer

visits and feedback were essential for an effective

product development process. Simply having liai-

sons between groups was not enough to ensure

effective communication.

Effective product development processes also

have extensive external communication that is

often facilitated by strong or ‘heavyweight’ team

leaders. For example, Ancona and Caldwell

(1992) found that successful product development

processes were characterized by extensive communication links outside of rhe group, particularly leaders to buffer the group from outside influences and to garner resources.

Clark and Fujimoto

(1991) similarly found that heavyweight leaders

who engaged in significant external communi-

cation and vision setting led more productive

product development projects.

Commonalities that are related to more effec-

tive routines exist for other dynamic capabilities

as well. For example, successful acquisition proc-

esses are characterized by preacquisition routines

that assess cultural similarity and consistency of

vision (e.g., Larrson and Finkelstein, 1999) and

postacquisition routines that pay particular atten-

tion to the speed of integration (Graebner, 2000)

and the strategic redeployment of assets across

the two firms (Capron et al., 1998; Graebner,

1999, 2000). Similarly, effective routines for

coevolving in order to capture synergies among

resources located in different parts of the organi-

zation typically have common features. These

include routines to ensure that business heads

develop social bonds with one another, and sur-

prisingly that the business heads are rewarded for

individual, not collective success (Christensen,

1997; Eisenhardt and Galunic, 2000).

The existence of common features among

effective dynamic capabilities does not, however,

imply that any particular dynamic capability is

exactly alike across firms. Take, for example,

knowledge creation processes, a crucial dynamic

capability especially within high-technology firms. A common feature across successful knowledge

creation processes is explicit linkage between the

focal firm and knowledge sources outside the

firm.

Commonalities across firms for effective speci-

fic dynamic capabilities have several implications.

First, they imply equifinality. That is, managers

of firms that develop an effective dynamic capa-

bility such as patching, knowledge creation, or

alliancing processes very probably begin the

development of that capability from different

starting points, and take unique paths. Yet, since

they end up with capabilities that are similar in

terms of key attributes, there are multiple paths

(equifinality) to the same dynamic capabilities. Second, commonalities in key features of effec-

tive dynamic capabilities imply that these routines

are more substitutable and fungible across differ-

ent contexts than current theory suggests. In the

case of substitutability, as our example of knowl-

edge creation processes suggests, effective

dynamic capabilities can differ in form and details

as long as the important commonalities are

present. In the case of fungibility, commonalities

imply the efficacy of particular dynamic capabili-

ties across a range of industries.

Third, commonalities imply that dynamic capa-

bilities per se are not likely to be sources of

sustained competitive advantage. The thinking is

as follows. According to the logic of RBV, sus-

tained competitive advantage occurs when capa-

bilities are not only valuable and rare, but also

inimitable, immobile, and nonsubstitutable.

Dynamic capabilities are typically valuable. They

may be rare or at least not possessed by all

competitors equally, as is apparent in much of

the empirical research. Sustainability, however,

breaks down for the latter conditions. Equifinality

renders inimitability and immobility irrelevant to

sustained advantage. That is, firms can gain the

same capabilities from many paths, and inde-

pendent of other firms. So, whether they can

imitate other firms or move resources is not

particularly relevant because managers of firms can discover them on their own. Dynamic capa-

bilities are substitutable because they need to

have key features in common to be effective, but

they can actually be different in terms of many

details. This suggests that dynamic capabilities

per se can be a source of competitive, but not

sustainable, advantage.

Finally, commonalities suggest that the scale

of ‘idiosyncratic firm effects’ in the empirical

literature (Brush, Bromiley, and Hendrickx, 1999;

McGahan and Porter, 1997; Roquebert, Phillips,

and Westfall, 1996; Schmalensee, 1985; Werner-

felt and Montgomery, 1988) is probably over-

stated. Simply using dummy variables for firms

leads to underspecified models that cannot capture

key organizational attributes of dynamic capabili-

ties as drivers of performance. Table 1 contrasts

our view with previous ones.

Market Dynamism:

dynamism. In particular,

dynamic capabilities vary in their reliance on

existing knowledge. Moderately dynamic markets

are ones in which change occurs frequently, but

along roughly predictable and linear paths. They

have relatively stable industry structures such that

market boundaries are clear and the players (e.g.,

competitors, customers, complementers) are well

known. In these markets, effective dynamic capa-

bilities rely heavily on existing knowledge. Man-

agers analyze situations in the context of their

existing tacit knowledge and rules of thumb, and

then plan and organize their activities in a rela-

tively ordered fashion (Burns and Stalker, 1966).

They can develop efficient processes that are

predictable and relatively stable with linear steps,

beginning with analysis and ending with

implementation (Helfat, 1997).

Similarly, Fredrickson (1984) examined stra-

tegic decision making in the paint industry, a

slowly evolving industry. He found that more

effective decision making processes were linear.

These effective processes were characterized by

a sequence of problem solving steps that began

with comprehensive collection of data, followed

by development of alternatives, extensive analysis

of those alternatives, and choice.

In contrast, when markets are very dynamic or

what is termed ‘high velocity’ (e.g., Eisenhardt,

1989), change becomes nonlinear and less pre-

dictable. High-velocity markets are ones in which

market boundaries are blurred, successful business

models are unclear, and market players (i.e., buy-

ers, suppliers, competitors, complementers) are

ambiguous and shifting. The overall industry

structure is unclear. Uncertainty cannot be mod-

eled as probabilities because it is not possible to

specify a priori the possible future states. In these

markets, dynamic capabilities necessarily rely

much less on existing knowledge and much more

on rapidly creating situation-specific new knowl-

edge. Existing knowledge can even be a disadvan-

tage if managers overgeneralize from past situ-

ations (Argote, 1999).

Effective dynamic capabilities in high-velocity

markets are simple, not complicated as they are

in moderately dynamic markets. Simple routines

keep managers focused on broadly important is-

sues without locking them into specific behaviors

or the use of past experience that may be inappro-

priate given the actions required in a particular

situation. Often these routines consist of a few

rules that specify boundary conditions on the

actions of managers or indicate priorities,

important in fast-moving markets where attention

is in short supply.

While dynamic capabilities are simple in high-

velocity markets, they are not completely unstruc-

tured or ‘organic’ (e.g., Burns and Stalker, 1966;

Lawrence and Lorsch, 1967). Indeed, if there

were no structures, these processes would fly out

of control and exhibit no coherence. Therefore,

simple routines provide enough structure (i.e.,

semistructure) so that people can focus their

attention amid a cacophony of information and

possibilities, help provide sense making about the

situation, and be confident enough to act in these

highly uncertain situations where it is easy to

become paralyzed by anxiety.

In high-velocity markets, absence of detailed,

formal routines is not indicative of extensive use

of tacit knowledge or complex social routines

that cannot be codified, although these may be

present. Rather, dynamic capabilities strikingly

involve the creation of new, situation-specific

knowledge. This occurs by engaging in experien-

tial actions to learn quickly and thereby compen-

sating for limited, relevant existing knowledge by

rapidly creating new knowledge about the current

situation. So, dynamic capabilities often use pro-

totyping and early testing to gain new knowledge

quickly. Such actions create rapid learning

through small losses and immediate feedback

(Argote, 1999; Sitkin, 1992). Dynamic capabili-

ties in these markets proceed in at iterative

fashion. As managers adjust to new information

and changing conditions, they engage in more

recycling through steps such as developing alter-

natives and implementation that would be linear

in less dynamic markets. Dynamic capabilities

also rely more on real-time information, cross-

functional relationships and intensive communi-

cation among those involved in the process and

with the external market. Real-time information

alerts people early on to the need to adjust their

actions since problems and opportunities are spot-

ted more quickly than when individuals were

more distant from information. Real-time infor-

mation also builds intuition about the marketplace

such that managers can more quickly understand

the changing situation and adapt to it (Eisenhardt,

1989). Finally, dynamic capabilities in these mar-

kets are characterized by parallel consideration

and

often

partial

implementation

(e.g.,

prototyping) of multiple options. Such options

provide fallback positions, which are useful since

situations can change rapidly. They also give

managers a sense of confidence to act quickly.

The emotional inability to cope with uncertainty

is a major factor that slows down managers in

high-velocity markets (Eisenhardt, 1989).

Effects

The effects of market dynamism on dynamic

capabilities have several implications. One is that

sustainability of the capabilities themselves varies

with the dynamism of the market. In moderately

dynamic markets, dynamic capabilities resemble

the traditional conception of routines (Cyert and

March, 1963; Nelson and Winter, 1982; Zollo

and Winter, 1999). That is, they are complicated,

predictable, analytic processes that rely exten-

sively on existing knowledge, linear execution

and slow evolution over time. As managers con-

tinue to gain experience with these routines, they

groove the processes more deeply such that they

become easily sustained and even inertial. Codi-

fication of the routines through the technology

or formal procedures enhances that sustainability

(Argote, 1999). Therefore, the capabilities

become robust.

In contrast, in high-velocity markets, dynamic

capabilities take on a different character. They

are simple (not complicated), experiential (not

analytic), and iterative (not linear) processes.

They rely on the creation of situation-specific

knowledge that is applied in the context of simple

boundary and priority-setting rules. But since

these routines are simple, there is little structure

for managers to grasp and so they become easy

to forget (Argote, 1999). This tendency to forget

is exacerbated by the high turnover and rapid

growth that often accompanies firms in high-

velocity markets. In more technical terms, these

improvisational processes are dissipative, meaning

that they require constant energy to stay on track

(Prigogine and Stengers, 1984). They are in the

continuously unstable state of slipping into either

too much or too little structure that is sometimes

termed the ‘edge of chaos’ (Kauffman, 1995).

What is challenging to manage then is the optimal

amount of structure (Eisenhardt and Bhatia,

2000). Therefore, dynamic capabilities themselves

become difficult to sustain in high-velocity mar-

kets. In moderately dynamic markets, competitive

advantage is destroyed from outside the firm. In

high-velocity markets, the threat to competitive

advantage comes not only from outside the firm,

but also more insidiously from inside the firm

through the potential collapse of dynamic capa-

bilities.

Evolution

The evolution of dynamic capabilities is also

affected by the pacing of experience. Experience

that comes too fast can overwhelm managers,

leading to an inability to transform experience

into meaningful learning. Similarly, infrequent

experience can lead to forgetting what was

learned previously and so result in little knowl-

edge accumulation as well (Argote, 1999). For

example, in the study mentioned earlier, Hayward

(1998) found that timing had an inverted ‘U’-

shaped relationship with acquisition performance.

Too many acquisitions done too frequently

impaired managers’ ability to absorb the lessons

of any particular acquisition. They needed time

to consolidate their learning. Yet, when there were too few acquisitions spaced too far apart,

managers did not have enough opportunities to

hone their skill.

Discussion:

Our work suggests reframing the concept of

dynamic capabilities. Dynamic capabilities are not

tautological, vague, and endlessly recursive as

some have suggested (e.g., Priem and Butler,

2000; Williamson, 1999). Rather, they consist of

many well-known processes such as alliancing,

product development, and strategic decision mak-

ing that have been studied extensively in their

own right, apart from RBV. Their value for com-

petitive advantage lies in their ability to alter the

resource base: create, integrate, recombine, and

release resources.

Dynamic capabilities also exhibit commonali-

ties across firms that are associated with superior

effectiveness. So while the specifics of any given

dynamic capability may be idiosyncratic to a

firm (e.g., exact composition of a cross-functional

product development team) and path dependent in

its emergence, ‘best practice’ exists for particular

dynamic capabilities across firms. These com-

monalities imply that dynamic capabilities are

equifinal such that firms can develop these capa-

bilities from many starting points and along dif-

ferent paths. They are also more homogeneous,

fungible, and substitutable than is usually

assumed. Overall, these observations suggest a

modified conception of dynamic capabilities.

Theory and Literature Review:

Resources: resources which are sometime synonym for assets are defined as all tangible or intangible things that can be used in the business processes of a firm to produce and develop products and/or offer services, whereas capabilities are action patterns repeating in the taking advantage of assets.

Subsequently we describe the characteristics of resources which lead organizations to attain competitive advantage with these resources.

Resource Characteristics: the three attributes of resources that help an organization create or attain CA are value, rarity and appropriability. The three attributes of resources that limit an organization’s ability to sustain CA are imitability, substitutability, and mobility.

Value: A resource has value when it enables an organization to implement strategies to improve efficiency and effectiveness.

Rarity: Rarity refers to the condition where the resource is not simultaneously available to a large number of firms.

Appropriability: Appropriability refers to a firm’s capability to appropriate the returns accrued by its competitive position in possessing valuable and rare resources. Resources, no matter how valuable and rare, are good if their benefits can be tapped and appropriated. Otherwise, a firm cannot be considered to have attained competitive advantage.

Inimitability: Inimitability is an attribute of a resource that makes it almost impossible for other firms to duplicate it. Resources would become very difficult to duplicate when they are deeply integrated into a firm through its unique development path, such as brand loyalty and company culture. Such resources are also characterized by social complexity.

Non-substitutability: Non-substitutability is an attribute of a resource which makes it difficult to replace with another resource that yields equivalent benefits. When an organization is in possession of a rare an inimitable resource, competitors may seek to match up by acquiring a substitute resource. In ensuring that the resource is also non-substitutable, the organization is in a competitively superior position that is not easily matched by competitors.

Immobility: Immobility of a resource is the condition in which the resource cannot be obtained by acquisition through factor markets. Immobility or imperfectly mobile resources make it difficult for competitors to attain instant competitive advantage by attracting resources away from rivals, purchasing them like commodities or even mergers and acquisitions with companies possessing strategically important resources.

Capabilities: Capability is the ability to transform inputs to outputs of greater value i.e. the ability of the firms to perform an activity more effectively than competitors with similar resource endowments. A capability can be intrinsically valuable or it can be valuable by increasing the value of a resource.