Dynamic capability is the capability of an organization to purposefully adapt an organization’s resource base.
It could be defined as, “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments.” (Teece et al., 1997)There are three dynamic capabilities necessary for an organization to meet new challenges – 1. The ability of employees to learn quickly and to build new strategic assets.2. The integration of these new strategic assets, including capability, technology and customer feedback, into company processes and lastly3. The transformation or reuse of existing assets which have depreciated.
Successful implementation of these three stages can be termed as developing “corporate agility”.Another “dynamic capabilities” concept is co-specialization. For example, the physical assets, human resources and the intellectual property of a company, having developed together over time, are more valuable in combination than separately, and give a firm a sustainable competitive advantage.
These three capabilities could also be described as Sensing, Seizing and transforming. Sensing involves exploring technological opportunities, probing markets, and listening to customers, along with scanning the other elements of the business ecosystem. Seizing includes designing business models to satisfy customers and capture value. Strong relationships must also be forged externally with suppliers, and customers. Companies that successfully build and orchestrate assets within the ecosystem stand to profit handsomely.
Apple retained an estimated 40 percent of the gross profits from the entirety of the value chain on its hard drive-based iPods, despite manufacturing no part of the product itself (Linden et al., 2009). Transforming capabilities are needed most obviously when radical new opportunities are to be addressed.
Apple has demonstrated its dynamic capabilities as it created and transformed the tech market time and again. In the example of iPhone, Apple recognized an opportunity. Apple realized that existing smartphones retained an awkward primitive interface and there was a need to reinvent an interface that was easier to interact with. With this strategy in mind Apple created a phone with large touchscreen and an intuitive interface that felt natural to interact with. It also promoted complimentary asset creation with the appstore which was constant throughout their ecosystem.
iPhone transformed the communication capabilities and with it the technology and telephony markets.