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Dynamic Capabilities

Dynamic capabilities entail the capacity to build and protect a competitive advantage.118 This rests on knowledge, assets, competencies, and complementary assets and technologies as well as the ability to sense and seize new opportunities, generate new knowledge, and reconfigure existing assets and capabilities.119 According to David Teece, an economist at the University of California at Berkeley, dynamic capabilities are related to the entrepreneurial side of the firm and are built within a firm through its environmental and technological “sensing” apparatus, its choices of organizational form, and its collective ability to strategize. Dynamic capabilities are about the ability of an organization to challenge the conventional wisdom within its industry and market, learn and innovate, adapt to the changing world, and continuously adopt new ways to serve the evolving needs of the market.

Examples of dynamic capabilities include product development, strategic decision making, alliances, and acquisitions.121 Some firms have clearly developed internal processes and routines that make them superior in such activities. For example, 3M and Apple are ahead of their competitors in product development. Cisco Systems has made numerous acquisitions over the years. Cisco seems to have developed the capability to identify and evaluate potential acquisition candidates and seamlessly integrate them once the acquisition is completed. Other organizations can try to copy Cisco’s practices. However, Cisco’s combination of the resources of the acquired companies and their reconfiguration that Cisco has already achieved places it well ahead of its competitors. As markets become increasingly dynamic, traditional sources of long-term competitive advantage become less relevant. In such markets, all that a firm can strive for are a series of temporary advantages. Dynamic capabilities allow a firm to create this series of temporary advantages through new resource configurations.


  1. Explain the role of knowledge in today’s competitive
  2. Why is it important for managers to recognize the
    interdependence in the attraction, development, and
    retention of talented professionals?
  3. What are some of the potential downsides for firms
    that engage in a “war for talent”?
  4. Discuss the need for managers to use social capital in
    leveraging their human capital both within and across
    their firm.
  5. Discuss the key role of technology in leveraging
    knowledge and human capital.

Look up successful firms in a high-technology
industry as well as two successful firms in
more traditional industries such as automobile
manufacturing and retailing. Compare their market
values and book values. What are some implications
of these differences?

  1. Select a firm for which you believe its social capital—
    both within the firm and among its suppliers and
    customers—is vital to its competitive advantage.
    Support your arguments.
  2. Choose a company with which you are familiar. What
    are some of the ways in which it uses technology to
    leverage its human capital?
  3. Using the Internet, look up a company with which
    you are familiar. What are some of the policies and
    procedures that it uses to enhance the firm’s human
    and social capital?
  1. Recall an example of a firm that recently faced
    an ethical crisis. How do you feel the crisis and
    management’s handling of it affected the firm’s
    human capital and social capital?
  2. Based on your experiences or what you have learned
    in your previous classes, are you familiar with any
    companies that used unethical practices to attract
    talented professionals? What do you feel were the
    short-term and long-term consequences of such

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