What are dynamic capabilities?

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Understanding dynamic capabilities?

When we think of the regular capabilities of a firm, they are the things that firms have or can do. It is a relatively static perspective – looking at the current state of play. Dynamic capabilities on the other hand are associated with change. They allow the firm to build capabilities. You can think of dynamic capabilities as the ‘capability to create xyz capability’.

When are dynamic capabilities important?

Dynamic capabilities are important for firms because the environment that companies operate in is never static. There are always new environmental changes that can present new opportunities or pose threats that require firms to change how they compete. Or competitors may make strategic moves that require companies to respond.

Being able to change the firm is the realm of dynamic capabilities. They are your ability to build new resources, adapt existing routines, and create new relationships to reposition the firm.

The important fo dynamic capabilities for startups and new ventures

Dynamic capabilities are particularly important for startups because the primary activity that the firm is initially doing is creating something new. A startup is trying to go from nothing to having a business – inevitably having to create new resources and capabilities in the process. 

The better able a startup is to be able to create the new resources that are required, the quicker and more successful it is likely to be at capitalizing on the opportunity it is pursuing. 

The challenge of dynamic capabilities

The thing that is challenging about dynamic capabilities is that it involves change – doing things differently. There is no template for how to do something new. Change may also mean adapting the resources that are the essence of what the firm is. Change can face resistance within firms – part of the reason that successful firms can often be very rigid.