Clarifying the conditions and limits of the contributions of ordinary and dynamic capabilities to relative firm performance

Abstract

Strategy scholars have argued that capabilities can influence firm performance through a variety of means and mechanisms. However, the role of capabilities and their proposed contributions have been narrowly theorized and insufficiently tested. We contribute to resolving these issues by considering the conditions under which ordinary and dynamic capabilities contribute to higher relative firm performance. We do so by examining the positive and negative contributions of capabilities to relative firm performance as well as the effects of environmental dynamism and the degree of capability heterogeneity. We utilize measures of relative firm performance at both the process and firm level within a sample of Chilean firms, which due to a dynamic environment allows for a clearer link between the environment and the use of capabilities. We find that environmental dynamism negatively affects the contribution of ordinary capabilities and positively affects the contribution of dynamic capabilities to relative firm performance. Further, heterogeneity strengthens the contribution of dynamic capabilities to relative firm performance, but is less important for ordinary capabilities. Interestingly, we find support for the direct effects of capabilities to be stronger with a process-level performance measure, whereas the influences of environmental dynamism and heterogeneity are stronger with a firm-level measure.higher. The reason for this, as explained above, is that ordinary capabilities allow the firm to enhance existing processes, products, and services. Therefore, we propose the following relationship:Hypothesis 1a: The greater the use of ordinary capabilities, the greater the relative performance of the firm.

Heterogeneity in dynamic capability configurations: Equifinality and strategic performance

“…Yet dynamic capabilities function in firm-specific, idiosyncratic ways (Drnevich & Kriauciunas, 2011;Eisenhardt & Martin, 2000). As Pettus, Kor, and Mahoney (2009, p. 189) suggest, even if the processes underlying dynamic capabilities overlap, "…they serve unique and complementary roles to boost the likelihood of operating successfully in environments of significant change."…”

Short-term versus long-term benefits: Balanced sustainability framework and research propositions

“…Though the understanding of the concept itself is advancing, their role and contribution remain as a blackbox as there are insufficient theoretical and empirical studies on capabilities (Drnevich and Kriauciunas, 2011). This study empirically tests the roles operational and dynamic capabilities play in the context of short-term and long-term sustainability contexts, attempting to clarify their unique roles in promoting corporate sustainable development.…”

“…Operational capabilities are also termed as "ordinary capabilities" because they help firms make a living in the short term by "enabling them to perform an activity on an on-going basis using more or less the same techniques on the same scale to support existing products and services for the same customer population" (Helfat and Winter, 2011;Drnevich and Kriauciunas, 2011).…”

“…Operational capabilities concern firms' existing products or services, existing business processes, existing customer relationships and existing ways of doing business (Drnevich and Kriauciunas, 2011). Different from resources which are readily observable and operational practices which are standard and transferable, operational capabilities are tacit and imitable.…”

Novel product innovation in project-based firms: explaining innovation where interdependent firms deliver complex system-level outcomes

“…The strategic management literature is focused on higher-level dynamic capabilities, when lower level ordinary capabilities may be most suitable to explain innovation in more less tumultuous industries (Drnevich & Kriauciunas, 2011;Hine et al, 2013;Winter, 2003). In particular, ad hoc problem solving focused on innovative problem solving would seem more suited to the contingent nature of innovation than would dynamic capabilities for new product development (Winter, 2003).…”