Changes in markets, technology or organisational behaviour often mean that existing competences become less capable of supporting ongoing financial performance. Teece et al. (1997) emphasised that the key role of managers is to use their ‘dynamic capabilities’ to adapt, integrate and reshape organisational skills, resources and competences, and this requires the capacity to learn and adapt when confronted with new situations or market conditions. O’Driscoll et al. (2001) proposed that a failure to reconcile existing competences and acquire new ones because of unrecognised changes in market conditions, technology or behaviour of competition may eventually lead a firm into a ‘competence trap’ where it remains fixated upon exploiting competences which no longer provide the basis for sustaining competitive advantage.
O’Driscoll et al. argued that to avoid the competence trap firms need to engage in new knowledge acquisition. This permits recognition of new entrepreneurial opportunities and an assessment of whether exploitation of new ideas will require utilisation of existing or totally new competences. Recognition also provides the basis for a renewal of resources, routines, capabilities and core competences. Dynamic competence is not necessarily concerned with developing new products or services: the actions required may be about building, integrating or reconfiguring existing capabilities.
Cavusgil et al. (2007) suggested that the car industry is a market environment where ongoing success is critically reliant upon entrepreneurially orientated dynamic capabilities. Capabilities these authors believe have contributed to Toyota’s success include:
- 1. A total systems approach to product development where people, processes and technology are fully integrated
- 2. Exploitation of the company’s understanding of customer-defined values to provide the entry point into any new product development
- 3. Reliance upon continuous innovation that drives all processes associated with the organisation’s commitment to improvement
- 4. Technology and product standardisation to support flexibility, reusability, common architecture and processes to minimise ‘time to market’.
In addition to correctly identifying desired future competences, according to Kuratko et al. (1990) , senior management, critically, must be willing to facilitate, promote, champion and support entrepreneurial behaviour by allocating adequate resources to support innovation and ensuring all employees understand that innovation is the organisation’s fundamental long-term strategy for optimising future performance. Hornsby et al. (2002) expanded this perspective to include senior managers’ willingness to provide entrepreneurial staff with autonomy, delegated authority to make decisions, freedom from excessive supervision and removal of restrictive controls over access to the required resources.
Barringer and Bluedorn (1999) stated that an optimal internal environment facilitates the relationship between the strategic thinking of senior management and the nature of entrepreneurial activities being undertaken within the organisation. These authors concluded there is also a critical need for the organisation to create systems that ensure continuous learning about the external environment, flexibility to revise strategies, plans to respond to new opportunities and adequate, but not restrictive, strategic controls. Birkinshaw and Gibson (2004) noted differences can arise between existing and new entrepreneurial strategies. They proposed that firms’ internal environment must be ‘ambidextrous’. This is necessary to enable a firm to switch between exploratory and exploitative learning in order to handle contradictions between current mainstream activities and future more entrepreneurial actions. To ensure the success of organisational ambidexterity, senior managers must present entrepreneurship as the ‘dominant logic’ within the organisation.
A major problem when extending, modifying and creating dynamic capabilities is the imperfect and intangible nature of the new knowledge that is to provide the foundation upon which dynamic capabilities are to be based. Teece (2009) posited that to ensure appropriate knowledge is acquired to develop, reshape, integrate and reconfigure existing and new resources and operational capabilities, senior management needs to:
- 1. Orchestrate the utilisation of complementary assets
- 2. Determine which is the most appropriate business model
- 3. Create the most appropriate internal environment to stimulate and nurture entrepreneurial thinking
- 4. Decide which are the most appropriate strategic investment choices
- 5. Provide the leadership and vision which motivates employees to welcome and to engage in the implementation of change.
Den Hertog et al. (2010) considered that the management of dynamic capabilities to support entrepreneurship is usually more difficult for service firms than for organisations supplying tangible goods. In their view, success in service situations requires effective management of the following processes:
- 1. New need identification by interacting with clients to determine how new approaches such as service customisation or revised service portfolio can enhance customer satisfaction.
- 2. Conceptualisingdelivery because delivery of a new service will involve different groups within the organisation or collaboration with others within the service supply chain to link service provision with the service user.
- 3. Service scaling reflecting that launching a large-scale new service is often very difficult due to problems over technology capacity, ensuring homogeneous behaviour by employees and the time required to embed new competences into the organisation.