Why Firms Win (Part 3) by Phineas Upham
Part 3 of 3
The idea that dynamic capabilities brings into the strategic framework – that both capabilities and the generation of new capabilities as well as the flexible combination of capabilities in response to changes in the market are vital – is extended by Collis (1994) who points out explicitly that since dynamic capabilities or “learning to learn” are, in some senses, the 2nd order of normal capabilities, why could we not take a 3rd and 4th order capabilities in order to gain competitive advantage. He concludes that there will never be a final, ultimate source of competitive advantage since one cannot avoid infinite regression in capabilities. Dynamic capabilities build on the resource based view and extend the literature into the sort of evolutionary and complex world that Nelson and Winter envision for strategy. They lend an important component to the dynamic capabilities view – one which emphasizes how a firm renews and maintains capabilities – advantages – over time and through change. We can see this idea of dynamic capabilities, with the idea of capabilities within this lending a large part of its power, being a powerful candidate for sustained competitive advantage.
Jay Barney’s to essays in this classes readings make a powerful argument about sustained competitive advantage. The first, 1986, argues that any capability that is valuable must be acquired and thus it will, barring superior insight or luck, be as expensive as it is valuable. So if a firm can gain competitive advantage from dynamic capabilities to, say, encourage information flow between R&D and manufacturing, and this advantage was well known, then all firms would acquire this ability up to the point where the cost of this ability was equal to its advantage. Then this would not be a source of competitive advantage. This argument is somewhat less powerful than it appears when applied to dynamic capability/capability mix since 1) firms are heterogeneous in their paths and abilities so a strategy pursued in one firm might not be possible or successful in another, so a valuable competitive advantage in one attribute might not be quickly devalued as others try to imitate of they cannot imitate (Diericx and Cool would agree in their 1989 piece). Barney attributes the ability of a firm to gain competitive advantage through competency in this article to uncertainty while I attribute it more to heterogeneity of firms. Barney moves closer to this view in his second article in 1991. He argues that a resource must be valuable, rare, imperfectly imitable, and without common or imitable strategically equivalent substitutes. He also claims that sustained competitive advantage is one which cannot be copied by others even over time.
Parts 1 and 2 available on the Academic Ledger.
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