When do Dynamic Capabilities Lead to Competitive Advantage? The Importance of Strategic Fit

Abstract

Recent studies suggest the relationship between dynamic capabilities and competitive advantage may be jointly affected by organizational and environmental factors. We enrich this nascent perspective by developing a configurational theoretical framework – underpinned by the mechanism of strategic fit – wherein dynamic capabilities lead to a competitive advantage when they support a strategic orientation appropriate for the levels of dynamism and munificence in the environment. Results of a fuzzy‐set Qualitative Comparative Analysis using primary data show that dynamic capabilities lead to a competitive advantage in dynamic, munificent environments by enabling the combination of differentiation and low‐cost orientations. In stable, non‐munificent environments, dynamic capabilities are effective in support of a low‐cost orientation. The central insight of this study is that the relationship between dynamic capabilities and competitive advantage is contingent upon the strategic fit between organizational and environmental factors, contributing to a more rigorous and configurational dynamic capabilities view.

The contributions of qualitative comparative analysis (QCA) to international business research

“…It also demonstrates, again with the above example in mind, that different companies might decide not to enter, or conversely to enter, a given foreign market as a function of different sets of explanatory factors. In general, fsQCA allows configurations of causal conditions to emerge from the data, which can serve to stimulate theory development in addition to theory testing of expected, a priori configurations (e.g., Fainshmidt, Wenger, Pezeshkan, & Mallon, 2019).…”

Exploration and exploitation in crisis environment: Implications for level and variability of firm performance

“…In this research, we build on the classic notion of strategic fit (Fainshmidt, Wenger, Pezeshkan, & Mallon, 2019;Miller & Friesen, 1983;Venkatraman & Prescott, 1990;Zajac et al, 2000) to examine and compare the distinct effects of exploration and exploitation on the level and variability of firm performance during an economic crisis. We expect this perspective to provide important understanding; in fact, the organizational decline literature emphasizes that the strategic fit of firms' responses to the decline driven by "environmental jolts" is decisive to economic performance, e.g., in the context of acquisitions (see Trahms et al, 2013Trahms et al, , p. 1295Wan & Yiu, 2009).…”

Early Internationalizing Firms' Capabilities

“…As a suggestion to solve this problem, we recommend future study that investigates the capabilities-performance association adopts the set-theoretic perspective (Fainshmidt, Wenger, Pezeshkan, & Mallon, 2019;Zadeh, 1965) and use a qualitative comparative analysis approach (Rihoux & Ragin, 2009b). The set-theoretic perspective allows to model conjunction, equifinality, and asymmetry (Fiss, 2011).…”

“…A conjunction is a core quality of the relationship between capabilities and performance (Fainshmidt et al, 2019). First, capabilities are nested within a hierarchical order, where higher-order capabilities reconfigure lower-order capabilities, and the lowest-order capabilities reconfigure the resources base (Heimeriks, Schijven, & Gates, 2012).…”

“…Our exploration contributes to the literature on the capability-performance relationship in international entrepreneurship (Fainshmidt, Wenger, Pezeshkan, & Mallon, 2019). Next to the support of dynamic bundles as a theoretical perspective in general, we identify the particular dynamic bundle configurations that are linked to the high performance of technology-based early internationalizing firms (TBEIF).…”