Dynamic Capabilities

Background

The resource-based view explained advantage through valuable, hard-to-imitate resources, but in industries with rapid technological change yesterday's strengths can quickly become obsolete. Dorothy Leonard-Barton (1992) observed that core capabilities can turn into core rigidities that block change when the environment shifts. The concern draws on Schumpeter's (1942) creative destruction and on Nelson and Winter's (1982) evolutionary economics, which viewed firms as bundles of routines, repeated patterns of activity. David Teece, Gary Pisano and Amy Shuen (1997) synthesized these ideas, defining dynamic capabilities as the firm's ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments. They argued that advantage is shaped by organizational and managerial processes, by the firm's current asset positions and by the paths it has followed.

Sensing, seizing, transforming and microfoundations

Teece (2007) grouped dynamic capabilities into three clusters: sensing, recognizing technological and market opportunities and threats; seizing, capturing opportunities through business models and investment decisions; and transforming, realigning assets and structures to fit the new environment. He stressed that these rest on microfoundations such as managerial judgment, organizational learning processes and governance. Cohen and Levinthal's (1990) absorptive capacity, the ability to recognize, assimilate and apply external knowledge, is closely tied to sensing. Zollo and Winter (2002) argued that deliberate learning, accumulating experience and articulating and codifying knowledge, drives the evolution of dynamic capabilities, and Winter (2003) distinguished zero-order capabilities that run daily operations from higher-order capabilities that change them. Helfat and Peteraf (2003) proposed the capability lifecycle of founding, development and maturity.

Debates and extensions

Kathleen Eisenhardt and Jeffrey Martin (2000) argued that dynamic capabilities are not mysterious but specific, identifiable processes such as product development, strategic decision-making, alliancing and acquisitions, which take broadly similar best-practice forms across firms. They are therefore means of changing resource configurations rather than sources of sustained advantage in themselves, and in high-velocity markets simple rules work better than elaborate routines. O'Reilly and Tushman (2008) treated organizational ambidexterity, simultaneously exploiting existing businesses and exploring new opportunities, as a dynamic capability. Critics have long faulted the concept's vagueness and measurement difficulties; reviewing hundreds of studies, Schilke, Hu and Helfat (2018) found the concept converging but measurement and links to performance still open. Together with research on path dependence, the theory is widely used to explain digital transformation and industry restructuring.

FAQ

What are dynamic capabilities in simple terms?

Beyond using current resources well, they are the ability to spot and seize new opportunities and reorganize people and assets when the environment changes.

How do they differ from the resource-based view?

The resource-based view focuses on the attributes of the resources a firm has now, while dynamic capabilities focus on the ability to change and renew those resources over time.

Sources reviewed: 2026-10-26

References

1. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.
2. Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. New York: Harper & Brothers.
3. Nelson, R. R., & Winter, S. G. (1982). An Evolutionary Theory of Economic Change. Cambridge, MA: Belknap Press.
4. Leonard-Barton, D. (1992). Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13(S1), 111–125.
5. Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152.
6. Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21(10–11), 1105–1121.
7. Zollo, M., & Winter, S. G. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13(3), 339–351.
8. Winter, S. G. (2003). Understanding dynamic capabilities. Strategic Management Journal, 24(10), 991–995.
9. Helfat, C. E., & Peteraf, M. A. (2003). The dynamic resource-based view: Capability lifecycles. Strategic Management Journal, 24(10), 997–1010.
10. Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350.
11. Helfat, C. E., Finkelstein, S., Mitchell, W., Peteraf, M., Singh, H., Teece, D., & Winter, S. G. (2007). Dynamic Capabilities: Understanding Strategic Change in Organizations. Malden, MA: Blackwell.
12. O'Reilly, C. A., & Tushman, M. L. (2008). Ambidexterity as a dynamic capability: Resolving the innovator's dilemma. Research in Organizational Behavior, 28, 185–206.
13. Schilke, O., Hu, S., & Helfat, C. E. (2018). Quo vadis, dynamic capabilities? A content-analytic review of the current state of knowledge and recommendations for future research. Academy of Management Annals, 12(1), 390–439.