Dynamic Capabilities refer to the skills and abilities of organizations to not only survive but thrive in our highly competitive global economy. What worked throughout the industrial age is not sufficient for success in the 21st Century. New and more evolved skills are needed by leaders, employees and organizations as a whole. Organizations need to embed dynamic capabilities into their operating framework.
According to Professor David J Teece at the Institute of Management, Innovation and Organization, Haas School of Business, University of California, Berkeley, CA. “Dynamic capabilities enable business enterprises to create, deploy, and protect the intangible assets that support superior long run business performance. The microfoundations of dynamic capabilities – the distinct skills, processes, procedures, organization structures, decision rules, and disciplines, – which undergird enterprise-level sensing, seizing, and reconfiguring capacities are difficult to develop and deploy. Enterprises with strong dynamic capabilities are intensely entrepreneurial. They not only adapt to business ecosystems, but also shape them through innovation and through collaboration with other enterprises, entities, and institutions.” He goes on to define the enterprise-level capacities as follows:Sensing refers to the capacity to sense and shape opportunities and threats to the organization. Seizing simply means the capacity to seize the desired opportunities when they arise. Reconfiguring refers to the capacity to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring its tangible and intangible assets, including difficult-to-replicate capabilities required to adapt to changing customer and technological opportunities.
The following are additional insights from Professor Teece’s article that support the concepts in the Business Design 2.0 framework.
Time to Up-Skill
Organizations must “step-up” their game because following best practices, controlling costs, and incremental innovation might be enough to “stay in the game” in the short-term but it’s woefully inadequate for the long haul. We need to improve our analytical skills, our decision making skills, and maintain an entrepreneurial mindset regardless of the size of our organizations. Decentralized organizations with greater local autonomy are better positioned to address shifting market conditions.
The future mandates combining complementary innovations (internal and external to the organization) to create comprehensive customer solutions through collaboration with customers, suppliers, and complementary service providers (which is just one of many reasons to develop relationship capital with all the organization’s stakeholders).
Creatively designed business models are just as important as the technologies employed. Successful commercialization of any product or service is tied to key business model components. It’s not enough to innovate new products or services, the business model used to deploy them plays an essential role in the long-term success achieved.
Decision errors are high and are often tied to cognitive bias, delusions, deception, and hubris, which can be especially dangerous in our fast-paced world where recovery opportunities are limited. Due to the failure of many businesses to address these issues, a competitive advantage can be gained by organizations that adopt techniques to overcome these types of errors. (Like learning to give and receive feedback and have a culture that welcomes open and honest communication.)
Agile Organizational Structure
Having an agile organizational structure is also essential. The ability to recombine organizational assets in conjunction with environmental change is necessary to maintain evolutionary fitness. The organization should embrace an agile mindset to minimize resistance to inevitable (and sometimes very fast) change. There can be no sacred cows. Every asset and every person must be willing to support redeployment for the long-term viability of the organization.
An entrepreneurial mindset to identify opportunities and redeploy the organization’s resources and relationships to not only be at the forefront of innovation but to shape its direction are essential skills needed for the coming years. Equally important is to break away from historical norms and stay ahead by developing knowledge assets, and creating new value-enhancing asset combinations, in a way that can’t be easily imitated.