The Limitations of Dynamic Capabilities

Abstract

The concept of dynamic capabilities draws its theoretical basis from two classic traditions within the strategy field – the resource based view of the firm (RBV) (Wernerfelt, 1984) and market positioning (Porter, 1996)1. A dynamic capability qualifies as a source of sustained heterogeneous firm performance within the RBV framework because it arises from embedded organizational routines that accumulate in a path dependent process – the “stock” explanation of durable advantage (Barney, 1991). Because such a dynamic capability allows a firm to continually reposition itself in product market space, it satisfies the “flow” explanation of current competitive advantage by ensuring that the firm always maintains a wider gap between willingness to pay and cost than competitors (Brandenburger and Stuart, 1996). Indeed, dynamic capabilities seem to give rise to the enviable ability to “always have a competitive advantage in an attractive industry” and so continually deliver superior financial performance regardless of external circumstances.