DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT

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DYNAMIC CAPABILITIES AND STRATEGIC MANAGEMENT

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It is over two hundred years since Adam Smith began his “Inquiry into the Nature and Causes of the Wealth of Nations”. The field of strategic management1 is barely fifty years old and it struggles to answer for the business organization the analogous question that smith posed (and for which he provided primitive but remarkably insightful answers) with respect to the nation state. The question (namely, what explains the ability of the business enterprise to generate wealth for the stockholders and other stakeholders) ani- mates managers, policy makers, investors, and the public. Over the last couple of decades a significant body of empirical research has emerged which provides at least partial answers.

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300 pages, published in 2009
Research indicates that characteristics of individual businesses explain variations in enterprise performance more successfully than characteristics of industry. Moveover, over time risk adjusted returns are remarkably similar across industries (but not firms) as one would expect if capital markets are reasonably efficient. These results call into question (or at minimum put into perspective) well entrenched market positioning approaches which posit the objective of strategy is to locate the enterprise’s products in a market niche that can be insulated from strong competition so as to generate above-average profits. The standard approach is built on frameworks from the field of industrial organization, which unfortunately tends to ignore intangible assets, innovation, firm capabilities, and disequilibrium phenomena.
D. J. Teece