Dynamic Managerial Capabilities
Summary and Keywords
Dynamic managerial capabilities are a form of dynamic capabilities. They are concerned with the role of managers in refreshing and transforming the resource base of the firm so that it maintains and develops its competitive advantage and performance. To do so, managers must develop entrepreneurial activities. These activities consist of sensing and seizing opportunities and transforming the resource base. While most studies focus on the role of top managers and CEOs, entrepreneurial activities can occur throughout the organization. Mid- and lower-level managers can also sense opportunities emanating from the market. Managerial human capital, managerial social capital, and managerial cognition are the three main antecedents to dynamic managerial capabilities.
Within the broad strategic management field, the role of managers in organizations has long been of interest and dates back to Chester Barnard (1938). Many contributions have followed, exemplified by the work of Penrose (1959), Mintzberg (1978), Pettigrew (1973), or the Strategy-as-Practice perspective (Johnson, Langley, Melin, & Whittington, 2007). In recent years, this role has been of core interest to dynamic capability researchers. The dynamic capability view (Teece, Pisano, & Shuen, 1997; Teece, 2007a) emerged from the resource-based view and is concerned with how firms can sustain and enhance their competitive advantage, notably when facing changing environments. The importance of managers’ role in refreshing, developing, or creating the firm’s resource base has specifically been brought to the fore via the notion of dynamic managerial capabilities (Adner & Helfat, 2003). Dynamic managerial capabilities are a particular type of dynamic capability (Martin, 2011). The concept extends the dynamic capabilities perspective by directing attention to the role of managers (Helfat & Martin, 2015). It is defined as “the capabilities with which managers build, integrate, and reconfigure organizational resources and competences” (Adner & Helfat, 2003, p. 1012). This is why dynamic managerial capabilities are key to performance. They are at the core of strategic change and firm renewal.
The purpose of this article is to present a review of current research and provide an agenda for future directions. First, the agency of dynamic capabilities is discussed, and the role of managers depending on their hierarchical level is explored. Next, the managerial antecedents and the cognitive and psychological underpinning of dynamic managerial capabilities are reviewed. Before concluding, some future research directions that would help complete the current literature are presented.
The Agency of Dynamic Capabilities
The first well-acknowledged definition of dynamic capability is “The firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997, p. 516). Several definitions followed, and different emphases have been given. Thus, for some authors dynamic capability is an aptitude (Teece et al., 1997; Teece, 1998; Zahra, Sapienza, & Davidsson, 2006; Augier & Teece, 2008), for others it is a capacity (Helfat et al., 2007; Teece, 2007a), a competence (Danneels, 2008), or a routine (Eisenhardt & Martin, 2000; Zollo & Winter, 2002). These differences highlight the fundamental question regarding the nature of dynamic capabilities. Are they organizational routines or are they managerial actions which derive from managerial intention (Peteraf, Di Stefano, & Verona, 2013)? Eisenhardt and Martin’s (2000, p. 1107) definition reflects the routine perspective: “dynamic capabilities thus are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die” (see also Zollo & Winter, 2002; Heimeriks, Schijven, & Gates, 2012; Schilke, 2014, concentrating on dynamic capabilities as routines). By contrast, the definition given by Helfat et al. (2007, p. 4) reflects the importance of managerial action and managerial intentionality: “a dynamic capability is the capacity of an organization to purposefully create, extend, or modify its resource base” (see also Tripsas & Gavetti, 2000; Adner & Helfat, 2003; Helfat & Martin, 2015; Helfat & Peteraf, 2015; King & Tucci, 2002; Teece, 2007a, 2007b; Augier & Teece, 2008, 2009; Martin, 2011; Kor & Mesko, 2013; Helfat & Martin, 2015, highlighting the role of managerial action). This question of agency, though, is arguably a red herring, as both aspects matter and each complements the other. Indeed, Teece (2012) emphasizes that even if some elements of dynamic capabilities are embedded in organizational routines, developing dynamic capabilities requires managers (Teece, 2007b). A manager’s role involves sensing and seizing opportunities and transforming the resource base (Teece, 2007a). The ability to sense an opportunity and to seize it, and eventually transform the resource base requires interpretation, reflection, and decision-making by managers, and to do so, managers must rely on routines, manipulate routines, and help develop new ones. In short, both routines and managerial action work together sequentially and simultaneously (Peteraf, Di Stefano, & Verona, 2013).
The reason why dynamic managerial capabilities are important is that they are central to organizational performance. The role of managers is fundamental to strategic change and firm performance insofar as managers are behind the creation and discovery of new opportunities (Adner & Helfat, 2003; Helfat & Martin, 2015). In what follows, the literature that directly addresses the concept of dynamic managerial capabilities as coined by Adner and Helfat (2003), and the literature that supports or attends to the notion without explicitly mentioning it, are reviewed and synthesized.
The Role of Managers: The “What” of Managerial Dynamic Capabilities
The concept of dynamic capabilities is defined as the ability to modify the resource base or the ability to ensure that an organization’s substantive capabilities change over time. A large volume of research highlights the critical strategic role of managers in this endeavor (King & Tucci, 2002; Zahra et al., 2006; Teece, 2007a, 2007b). Following an argument put forward by Penrose (1959), Zahra et al. (2006) argue that the possession of dynamic capabilities per se does not induce organizational performance; rather, it is the management of these capabilities that is likely to allow the organization to gain superior performance-related benefits. By contrast, managerial rigidities limit the creation of dynamic capabilities (Danneels, Verona, & Provera, 2017; King & Tucci, 2002) and therefore the firm’s performance.
Teece (2016) indicates that managers are the pillars behind dynamic capabilities. More precisely, he explains that beyond their operational role, which is about the development of current activities such as budgeting and staffing, managers have two roles that underpin dynamic capabilities: an entrepreneurial role and a leadership role. The entrepreneurial role involves the ability to sense and seize opportunity, orchestrate resources, and adapt the organization and its business model. The leadership role requires propagating the vision and values of the organization, aligning people with strategy, and motivating them. Together these roles form what Teece (2007a, 2016) called “entrepreneurial management” and this constitutes the functions of dynamic capabilities, the “what” of dynamic managerial capabilities (Helfat & Martin, 2015).
The notion of entrepreneurial management emphasizes the strategic function of managers (Teece, 2007b, 2012; Augier & Teece, 2009). Entrepreneurial activities (Teece, 2012), such as the identification and exploitation of opportunities, are required for the development of dynamic capabilities. These activities consist of selecting the desired resources and skills and promoting organizational learning to capture external knowledge (Zahra et al., 2006). This is in line with the Schumpeterian argument in that managers must introduce novelty and seek new combinations of resources and competences, and with evolutionary theories in that managers must promote and shape learning (Augier & Teece, 2008).
Entrepreneurial management relates directly to entrepreneurship (Helfat & Martin, 2015), as entrepreneurship is about sensing opportunities and creativity (Teece, 2012). However, entrepreneurship here is not conceived as being only about individuals and start-ups, but also as applying to established businesses. Indeed, researchers agree that organizations with strong dynamic capabilities are those that are intensely entrepreneurial.
Teece (2007a), in explicating dynamic capabilities, argued that they involve three key capacities: the capacity (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to transform the resource base. These three components overlap, and, in large organizations, they can be implemented differently in different divisions (Teece, 2016). Managers play a role in each component.
Sensing and shaping opportunities. Sensing (or shaping) new opportunities is closely linked to scanning, creating, learning, and interpreting activities (Teece, 2007a). Organizational processes such as research and development and scanning activities are organizational sources for identifying opportunities. While in some large organizations research and scanning activities can be supported by established routines (Teece, 2016), this is less so for sensing opportunities, which is by nature an entrepreneurial activity. It is closely linked to “opportunity recognition” described in the entrepreneurship literature (Teece, 2016). Identifying opportunities involves not only identifying customer needs and technological developments but also understanding latent demand and structural change in industries and markets, as well as understanding supplier and competitor responses (Teece, 2007a).
Seizing opportunities. This is characterized by decision making. When opportunities are identified, managers need to know how to interpret new events and developments, which technologies to pursue, and which market segments to target (Teece, 2007a). Several managerial roles foster this ability. By selecting the product architecture and associated business models (Teece, 2018), managers help define how the organization delivers value to its customers. Managers must focus on the technologies and functionalities to be incorporated in the product and service. They must also design the revenue and cost structure of the business such that these are appropriate to meet customer needs. The managers must also decide upon the way in which the technologies are assembled. This also involves identifying the segment target market. When acting, managers need to ensure that the organizational decision-making protocols are void of bias and decision errors. All these actions are about developing the most appropriate business model to create value for customers and the organization. These activities require managers to play both entrepreneurship and leadership roles (Teece, 2016).
Transforming the resource base. This involves identification of opportunities, the selection of technologies and product attributes, the constitution of new business models, as well as the financial commitment of the organization to seize opportunities to create growth and profitability (Teece, 2007a). To maintain growth and profitability, transforming the resource base is essential. Several studies have revealed the importance of managers in this regard (Sirmon & Hitt, 2009; Maritan, 2001; Eggers, 2012; Ringov, 2013). They highlight that performance is at its highest when managers ensure that resource investment and resource deployment match (Sirmon & Hitt, 2009), and when approaches to transform the resource base are less routinized (Ringov, 2013). Teece (2007a) explains there are essentially four factors undergirding the continual modification of organizational assets. The first is the decentralization and the decomposability of the decision. These can allow different managers to have access to different information and control different decisions without going through a single decision maker. The decentralization of decision making means greater responsibility for decision making at different managerial levels. As a result, managers can act at their level and help identify opportunities and threats. The second factor is managing cospecialization, that is, the complementarity of an asset with another asset. The managers’ ability to develop and invest in cospecialized assets is fundamental to building dynamic capabilities and creating value. The third factor underpinning the transformation phase is governance. By developing and maintaining appropriate organizational structure and processes, managers can enable learning and the generation of new knowledge, and can also protect knowledge “leaks” or misuse. The fourth factor is knowledge management. Managers must have the ability to integrate and combine knowledge.
The “transforming the resource base” phase of the framework is characterized by the managers’ leadership role. In times of business and technological turbulence, top managers must spread the new strategic vision within the organization to implement the new strategy effectively, and they must also ensure the fit of the organization with the opportunities it plans to exploit (Teece, 2016). This shows that dynamic capabilities and strategy are closely interlinked. Dynamic capabilities facilitate the implementation of the strategy, and the firm’s strategy provides the orientation of how the resource base of the organization must be deployed (Augier & Teece, 2009; Teece, 2014). The direct role of dynamic capabilities in strategy making is well acknowledged. For instance, some studies have shown that they promote the deployment of related diversification (Døving & Gooderham, 2008), while others have explored corporate acquisition (Zollo & Singh, 2004; Mitchell, Capron, & Anand, 2007) or alliance strategy (Singh, Dyer, & Kale, 2007; Kale & Singh, 2007). According to Rumelt (2011) a good strategy has three components: (1) a diagnosis, (2) a guiding policy, and (3) coherent action. These interact with the three components of dynamic capabilities: sensing opportunities, seizing them, and transforming the resource base. The role of dynamic managerial capabilities has been especially a focus given the role of individuals in strategic decision making. The review provided by Helfat and Martin (2015) highlights that the role of dynamic managerial capabilities in strategic change and in organizational performance is well documented, notably in strategic changes such as market entry, new product and service introduction, acquisitions, divestitures, alliances, strategic renewal, or asset portfolio modification. Other studies have analyzed managerial impact on strategic renewal and revealed the importance of top management intentionality and managerial dynamic capabilities in redirecting strategies (Simons, 1994; Salvato, 2009) or in recognizing the need to revitalize an organization’s dominant logic (Kor & Mesko, 2013).
In what follows we examine how the three components of dynamic capabilities, that is, sensing opportunities, seizing them, and transforming the resource base are associated with the hierarchical level of the manager.
The Level of Managers: The “Who” of Managerial Dynamic Capabilities
Many theoretical studies highlight the importance of top managers in the creation and deployment of dynamic capabilities. Authors refer to these higher-level managers as top management (Rosenbloom, 2000; Tripsas & Gavetti, 2000), CEO (Kor & Mesko, 2013; Teece, 2016), senior managers (Ambrosini & Bowman, 2009; Kor & Mesko, 2013), or general managers (Martin, 2011). For example, Teece (2007a, p. 1325) indicates that “top management leadership skills are required to sustain dynamic capabilities” because, while some elements of dynamic capabilities are embedded in organizations, the ability to transform the resource base is the responsibility of top management (Teece, 2012). Teece (2014) explained that, for instance, Texas Instruments succeeded in implementing thorough changes and diversifying its activities thanks to strong dynamic capabilities, whose deployment was heavily influenced by the company’s successive CEOs and top management team. Texas Instruments is an illustration of a positive story, but negative ones can be found as well. Some top managers may be stuck in their old ways of doing things, and thus develop rigidities. Danneels’s study (2010) on Smith Corona describes a perfect example. Should this happen, a change in top management is necessary. In the same vein, some managers may misinterpret the competitive landscape they operate in and, as a result, may trigger inappropriate dynamic capabilities (Ambrosini & Bowman, 2009), inducing a drop in performance. Organizations need top managers who can bring organizational transformations by making new commitments and breaking old ones (Rosenbloom, 2000). This is one of the reasons behind the high turnaround of CEOs (Teece, 2016). This also shows that dynamic capabilities are heterogeneously distributed among managers (Helfat & Martin, 2015).
The role of top managers is not only about engaging in entrepreneurial activities, but is also about recognizing and acting on relevant ideas that emerge from any level of the organization (Teece, 2016). It is also about configuring and orchestrating the dynamic managerial capabilities of the rest of the senior executive team. Kor and Mesko (2013) show that CEOs play an important role in the configuration of senior executive team dynamic managerial capabilities through the identification, recruitment, and gathering of managerial skills. Another critical role is the orchestration of the senior executive team dynamic managerial capabilities by establishing and promoting an environment where the team can share, discuss, and negotiate ideas, perspectives and beliefs. This fosters synergy and continuous learning, and, as a consequence, the senior executive team dynamic managerial capabilities improve and develop.
The importance of interaction between managers is highlighted in a range of other studies. For instance, Maritan (2001) shows that the interaction between top management and business unit managers is important to transform the resource base and implement strategic change. Martin (2011) also shows the importance of interaction between business unit managers. He showed that an “episodic team” facilitates the development of dynamic managerial capabilities. While in each of their separate units the managers operate autonomously, by coming together in such a team they operate collectively and interdependently, and this allows for improvement of their ability to sense and seize opportunities, and eventually for the transformation of their resource base. However, Martin (2011) also provides evidence that the dynamic managerial capabilities are only strong when the members in the episodic team have “social equivalence”—“the material and perceptive reality among General Managers that they are similarly effectual in their capacity to act with resources” (Martin, 2011, p. 131)—and power parity with their peers.
Lower Levels of Management
While many studies have focused on the role of top managers, there is no reason to exclude other management levels. Teece (2016) indicates that entrepreneurial efforts should not be restricted to the top management or CEO but should occur throughout the whole organization. Teece (2007a) highlights that sensing opportunities requires the decentralization of structures to facilitate communication with all the different levels of management that can sense the opportunities emanating from the market. With centralized structures, top managers may not be as close to customers as mid- and lower managers. As such, top managers may not be able to identify opportunities which fit their customers’ needs. This said, there have been fewer studies on lower-level dynamic managerial capabilities than on top-level ones, and the few studies that do exist show that the ideas of front-line managers are less implemented than those of top and middle managers even in organizations with an entrepreneurial culture (Teece, 2016).
Whatever their level in the hierarchy, managers can display managerial dynamic capabilities. The question that needs asking now that the “why,” “what,” and “who” have been addressed is the “where from”: what are the antecedents to dynamic managerial capabilities?
Managerial Underpinnings: Where Do Managerial Dynamic Capabilities Come From?
The Three Core Antecedents to Managerial Dynamic Capabilities
Managerial human capital, managerial social capital, and managerial cognition are the three main antecedents to dynamic managerial capabilities (Adner & Helfat, 2003; Martin, 2011), and the three are intertwined. Managers differ in terms of the three antecedents, and these differences induce differences in outcomes. Because these three antecedents are unevenly distributed among managers, some managers have more effective dynamic managerial capabilities than others, and some lack dynamic managerial capabilities entirely (Helfat & Martin, 2015). The organizations whose managers have superior dynamic capabilities can adjust their strategy more successfully than the organizations that do not. These antecedents undergird the three phases of dynamic managerial capabilities (sensing opportunities, seizing opportunities, and transforming the resource base).
Managerial human capital. This refers to the managers’ skills and knowledge, which have been shaped by their education, and personal and professional experience (Kor & Mesko, 2013). The managers’ past experience serves as a basis for acquiring knowledge, developing further experience, and improving individual skills. Such capital can serve to assist managers in sensing and seizing opportunities and threats, and in reconfiguring the resource base (Helfat & Martin, 2015). Managers differ in terms of their mix of skills and in terms of how developed those skills are (Adner & Helfat, 2003).
Managerial social capital. This results from managers’ relationships and connections that can confer some degree of influence, control, and power (Adner & Helfat, 2003; Kor & Mesko, 2013). Social capital can be of two types: external and internal (Adler & Kwon, 2002). External social capital can improve the performance of firms in two ways (Gelatkanycz & Hambrick, 1997): (1) by providing access to external resources needed by the firm (e.g., financing), or (2) by providing information about the practices of different firms. Internal social capital can confer influence and allow managers to obtain information from different levels of the organization. For example, corporate managers can obtain information from division managers, and vice versa, or exert power over resource allocation (Adner & Helfat, 2003). Therefore, managerial social capital is likely to underpin seizing opportunities and reconfiguring the resource base (Helfat & Martin, 2015). Social ties can allow the firm to access resources, such as financial resources or skilled personnel.
Managerial cognition. Managerial cognition is an important managerial antecedent that allows the individual to sense market opportunities (Helfat & Martin, 2015). It refers to the belief systems, mental models, and interpretive frames used to make decisions (Prahalad & Bettis, 1986; Walsh, 1995; Adner & Helfat, 2003; Kor & Mesko, 2013). Managerial cognition influences strategic decisions (Adner & Helfat, 2003; Tripsas, 1997) by identifying which knowledge is important in which context (Teece, 2016). For example, Tripsas and Gavetti (2000) highlighted the difficulties faced by Polaroid in the development of digital technology due to the inappropriate mental model of its top managers.
The three antecedents interact with each other (Adner & Helfat, 2003). The manager’s experience forms his or her cognitive base insofar as prior work experience influences managerial decisions. The cognitive base allows the acquisition of experience through the learning process. Regarding the relationship between managerial cognition and social capital, Adner and Helfat (2003) indicate that internal and external relationships provide access to information that will increase a manager’s cognitive base. Managerial human capital has an impact on social capital, with the latter inducing information gathering that impacts on human capital by increasing knowledge.
Some scholars argue that these three managerial antecedents can favor strategic change and revitalize the organization’s dominant logic. Thus, regarding managerial cognition, studies show the difference between inflexible (Tripsas & Gavetti, 2000; Danneels, 2010) and flexible (Nadkarni & Narayanan, 2007) managerial knowledge structures. The latter are more beneficial to implement strategic change. Likewise, managerial social capital also has a positive impact on strategic change. For instance, regarding acquisitions related to strategic change, studies show that the more external ties top managers have, the more acquisitions organizations undertake (Helfat & Martin, 2015). Managerial education and work experience also have a positive impact on strategic change.
In what follows these antecedents are further explored by developing their microfoundations and, notably, their cognitive and psychological underpinning.
The Cognitive and Psychological Underpinning of Dynamic Managerial Capabilities
Taking a cognitive and psychological approach to dynamic managerial capability is very salient since the level of analysis is the individual. The three core antecedents to managerial dynamic capabilities all have cognitive and psychological underpinnings (Helfat & Peteraf, 2015; Hodgkinson & Healey, 2011). Helfat and Peteraf (2015) coined the term “managerial cognitive capability,” and focused on mental activities to explain the microfoundations of dynamic capabilities at the level of the individual manager. Hodgkinson and Healey (2011) focused on the emotional, affective, and nonconscious cognitive process to explain dynamic managerial capabilities. Both Helfat and Peteraf (2015) and Hodgkinson and Healey (2011) refer back to Teece’s (2007a) dynamic capability framework to explain how cognitive and psychological capabilities underpin the three phases, which are sensing and seizing opportunities and transforming the resource base (see Figure 1).
Sensing opportunities. According to Helfat and Peteraf (2015), two cognitive capabilities facilitate sensing opportunities: perception and attention. It is the managers’ perceptions of the need for change that trigger the transformation of the resource base (Ambrosini, Bowman, & Collier, 2009). Perception involves two mental functions: pattern recognition and interpretation of data. It favors sensing opportunities through recognizing emerging patterns in the environment and interpreting these data. Ambrosini and Bowman (2009) indicate that the way in which the managers interpret environmental data depends on their perception of uncertainty and complexity and this, in turn, may affect their decisions and actions, notably regarding why, how, and what dynamic capabilities are deployed. They also specify that differing managerial perceptions can lead to managers deploying different dynamic capabilities in organizations that have similar characteristics and share a similar environment.
Attention is defined as “the state of focused awareness on a subset of available perceptual information” (Helfat & Peteraf, 2015, p. 838). Attention allows one to focus on relevant stimuli and thereby it can facilitate environmental scanning and the identification of new opportunities. Hodgkinson and Healey (2011) highlight the importance of intuition to sense opportunities. While there are many definitions of intuition (see Behling & Eckel, 1991, and their exposition of six conceptualizations), we employ here only one: that of Hodgkinson and Healey (2011). They conceptualize intuition as an unconscious process, and they explain that intuitive decision making results in faster and better choices than analytical reasoning, even if unconscious intuition requires the same amount of information as analytical reasoning (Behling & Eckel, 1991).
Hodgkinson and Healey argue that managers often need to use their intuition and tacit knowledge during the sensing process because sometimes, when facing complex strategic situations, skills in pattern recognition and interpretation of data may be insufficient. They highlight that organizations that acknowledge and willingly integrate intuition into their practices are more efficient in sensing opportunities than those that operate using only analytical approaches. This leads them to conclude that organizations need both individuals who have analytical cognitive styles, and those with intuitive cognitive styles. They also nuance the role of intuition by indicating that relying on intuition is not always the right way forward. They explain that using intuition is appropriate when two criteria are met: the first is that “there is sufficient environmental regularity to learn the cues that enable the recognition of patterns and irregularities”; and the second is that “decision makers have learned those cues” (Hodgkinson & Healey, 2011, p. 1506).
Seizing opportunities. Cognitive capabilities relevant to seizing opportunities are problem-solving capabilities that are about “finding a way around an obstacle to reach a goal” (Helfat & Peteraf, 2015, p. 840), and reasoning capabilities that are about “evaluating information, arguments, and beliefs to draw a conclusion” (Helfat & Peteraf, 2015, p. 840). These capabilities allow managers to seize opportunities. They underpin managers’ ability to make investment decisions and design the business model appropriate for the required strategic change.
Two mechanisms are available to managers for solving problems: controlled mental processing and automatic heuristic processing. Controlled mental processing is characterized by the application of formal rules of logic or rational approaches. Automatic heuristic processing “relies on short cuts such as guessing at a solution and working backwards” (Helfat & Peteraf, 2015, p. 840). Aldag (2012) presents different types of heuristics (availability, representativeness, anchoring and adjustment, and default heuristic) and explains that they are rules of thumb that simplify decision making. Heuristics are particularly effective when decision makers face time pressures or when problems are complex or ill-defined, because heuristics are not about optimizing a decision or solution, but they are about seeking satisfactory solutions.
The choice and efficacy of controlled mental processing or automatic heuristic processing depend on the characteristics of the situation and how much time is available to solve the problem. Furthermore, Hodgkinson and Healey (2011) highlight that emotional commitment also facilitates seizing opportunities. Indeed, whilst analytical processes or computational mechanisms may preclude organizations from making innovative and risky investment choices, felt emotions may increase the likelihood of their doing so and seizing new opportunities. Hodgkinson and Healey (2011) also explain that people typically act on their felt emotions. Their emotional judgment overpowers the rational choosing process. Decision makers can decide to cease seizing opportunities, when they have negative feelings. For this reason, Hodgkinson and Healey (2011) note that harnessing emotional reaction rather than suppressing it is critical to seizing opportunities.
Transforming the resource base. The cognitive capabilities that underpin this phase are language and communication capabilities, and social cognitive capabilities. Language may be defined as “any system for representing and communicating ideas” (Helfat & Peteraf, 2015, p. 842), and there is a difference between language and non-verbal communication. The latter is “any form of communication other than language including paralanguage, facial expressions, kinesics etc.” (Helfat & Peteraf, 2015, p. 842). Both are important in the process of transforming the resource base in that they may aid the top management to persuade organizational members to support new initiatives and embrace strategic change. For instance, managers may utilize their storytelling skills to motivate and mobilize organizational members to take a new strategic direction. Motivation is important in the organization’s resource base transformation. Taking a psychological stance, Hodgkinson and Healey (2011) also pinpoint the role of managers in reducing fear and anxiety in this phase. Managers must be able to build emotional commitment to the new strategy.
Transforming the resource base also requires cooperation among organizational members. The social cognitive capabilities of managers are key in this regard. They are in this area is characterized by “the capacity to understand the point of view of others and therefore provides the potential to influence the behavior of others as well” (Helfat & Peteraf, 2015, p. 844). Mutual understanding may enable managers first to build and foster trust, an essential element of cooperation, among organizational members; and second, to help organizational members overcome their resistance to change by better understanding the causes behind this resistance. It may also allow managers to enhance their communication and incentive structure to achieve buy in.
These cognitive capabilities are heterogeneously distributed among managers. Thereby, each manager differs in his or her capabilities in sensing and seizing opportunities and transforming the resource base (Helfat & Peteraf, 2015): some managers will be able to sense new opportunities more accurately than others; some managers will design more effective business models (Teece, 2018) and make more astute investment decisions than others; and some, who have better language and social capabilities, will find it easier to gather support and implement strategic change.
Since the first published article about dynamic capability appeared in 1990 (Teece, Pisano, & Shuen), the concept has experienced many years of development thanks to a range of theoretical and empirical studies. We know that developing dynamic capabilities can enable organizations to maintain, refresh, or improve their performance (Teece, 2007a, b; Moliterno & Wiersema, 2007; Drnevich & Kriauciunas, 2011; Fainshmidt, Pezeshkan, Frazier, Nair, & Markowski, 2016). We also know that there are three components to dynamic capabilities—sensing opportunities, seizing them, and transforming the resource base—and that dynamic capabilities operate in different ways (Eisenhardt & Martin, 2000; Helfat & Peteraf, 2003; Danneels, 2010). They can integrate resources, reconfigure resources, or release resources (Eisenhardt & Martin, 2000; Moliterno & Wiersema, 2007).
This article has highlighted the importance of managers and their managerial dynamic capabilities in this process, and the importance of the core antecedents to those capabilities, namely, managerial human capital, managerial social capital, and managerial cognition (Adner & Helfat, 2003; Helfat & Martin, 2015). There is, however, still a lack of studies that have concentrated specifically on these antecedents. We have yet, for instance, to understand which set of dynamic managerial capabilities and their associated antecedents matter most for a specific mode of transforming the resource base. We know that there are a range of dynamic capabilities (Bingham, Heimeriks, Schijven, & Gates, 2015)—for example, those suited to the development of a new product (Helfat, 1997; Danneels, 2002; Kale, 2010) or service (Pablo, Reay, Dewald, & Casebeer, 2007; Zollo & Singh, 2004), to forging alliances (Kale & Singh, 2007; Singh, Dyer, & Kale, 2007), to diversification (Døving & Gooderham, 2008), divestiture (Moliterno & Wiersema, 2007), or country entry—but there is insufficient understanding of the specific factors that undergird them. We may know, for instance, that business acquisitions are more likely when top management has many external ties (Helfat & Martin, 2015), but are external ties as important for other dynamic capabilities, such as new product development? We also need to better understand how the environment (high or low dynamism), firm size, and resources (fungible vs. non fungible) enable or constrain dynamic managerial capabilities.
As the level of analysis of dynamic capability is the individual, the psychological underpinnings must be considered. However, studies are scarce in this regard. We need to understand how managerial perception and intuition enable the development of more effective capabilities. Further studies could focus on the psychological mechanisms, such as perception, emotion, and intuition, to understand if and how these mechanisms may favor sensing, seizing, or transforming in organizations.
We need also to know more about dynamic managerial capabilities for mid- and lower-level managers. Most studies have examined top managers. However, as argued by Teece (2007a, 2016), managers at all different levels must participate in sensing opportunities, because they are close to customers. Further research can study not only how sensing at this level is received by other levels of managers, but also how and whether organizations should foster the involvement of low to middle managers in the other dynamic capability phases of seizing and transforming.
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