Organization Architecture and Dynamic Capabilities: Network Microfoundations of Competitive Advantages in Dynamic Markets

Abstract

This paper contributes to dynamic capabilities research by investigating how features of organization architecture provide a basis for superior firm performance and sustainable competitive advantage in dynamic markets. Using a simple model of organization architecture composed of networked employees with distinctive knowledge and dynamic markets composed of a flow of heterogeneous opportunities, I explore how knowledge mobilization mechanisms leveraging network ties – transfer, collaboration, and recombination – underlie dynamic capabilities. Prior theory predicts that the performance of these substitute network mechanisms increases with market dynamism, but produces unsustainable advantages under imitative conditions. By contrast, I find different performance effects of unpredictability and complexity, and a complementary impact of using transfer and recombination mechanisms together that can generate sustainable advantages, suggesting design conditions for dynamic capabilities.

Keywords: Dynamic Capabilities, Organization Architecture, Opportunities, Dynamic Markets

JEL Classification: D21, D23, D2, D8