Linking dynamic capabilities, operational capabilities and firm resources to performance

Ramesh Dangol, Purdue University

Abstract

The primary objective of this dissertation is to enhance our understanding of dynamic capabilities by distinguishing them from operational capabilities and by showing how they contribute to firm performance through the renewal of operational capabilities and through the reconfiguration of resources. It is important to distinguish between dynamic and operational capabilities in order to avoid confusion about whether a given capability should be considered dynamic or operational. Current literature on this topic argues that dynamic capabilities are those firm capabilities that can induce changes in other capabilities, while operational capabilities are static. Distinguishing between these capabilities in this manner is not helpful because changes occur continuously in all capabilities to at least some extent and empirical studies show that even task-level operational capabilities can change on their own and induce changes in other capabilities. In contrast to focusing on the presence or lack of change to determine if a capability is dynamic or operational, I argue that we might be able to distinguish between them by determining the outcome of changes induced by capabilities. By focusing on the outcomes of changes rather than the changes themselves, I argue that capabilities should be considered operational if they produce outcomes that can be predicted using probability distribution while those capabilities that produce outcomes that cannot be predicted using probability distribution should be considered dynamic. Although the dynamic capability framework argues that dynamic capabilities influence firm performance by renewing operational capabilities, it is unclear from prior studies whether they actually influence firm performance through operational capabilities. It is also unclear whether a dynamic capability influences firm performance through the renewal of a single operational capability or several of them. Using a firm's capability to learn from customers as a proxy for a dynamic capability, I find that it renews the process-quality, process-efficiency and operational flexibility capabilities, but influences firm performance only through the process-quality capability. The renewal of the process-efficiency and operational flexibility capabilities serves to maintain existing operations. Capabilities that simultaneously influence performance and maintain existing operations are termed dual-purpose capabilities. I provide empirical support for the existence of dual-purpose capabilities. Prior studies in dynamic capabilities argue that dynamic capabilities help a firm to gain a competitive advantage by creating new resources and capabilities in a rapidly changing environment. Although this is true, I argue that a firm's dynamic capabilities can also influence firm performance by increasing the productivity of a firm's existing resources by creating resource configurations that are optimal in complementarity. I find that a firm's resource reconfiguration capability influences resource complementarity, which in turn influences firm performance. Since a firm's resource reconfiguration capability, a dynamic capability, can influence firm performance in a way other than by creating new resources and capabilities, I argue that all firms can benefit from investing in resource reconfiguration capabilities, a component of dynamic capabilities. This argument contrasts with current dynamic capability literature, which argues that dynamic capabilities are beneficial only for firms that operate in rapidly changing environments.

Degree

Ph.D.

Advisors

Brush, Purdue University.

Subject Area

Management

COinS