Strategy: Dynamic Capabilities

Dynamic capabilities is a new approach to strategy that focuses on a firm’s ability to build upon and adapt existing competencies to bring value to the customer while creating a sustainable, competitive advantage for the firm.

I just read an article entitled “Dynamic Capabilities at IBM: Driving Strategy Into Action.” It was published in the Summer 2007 issue of the California Management Review and written by J. Bruce Harreld, Charles A. O’Reilly, and Michael L. Tushman .

The article stated:

While earlier approaches to strategy were largely static (e.g., develop a positional advantage and protect it), dynamic capabilities call attention to the need for organizations to change over time and compete in both emerging and mature businesses.

Strategy is important to IBM’s trajectory from a successful company to an unsuccessful firm and back again.  The authors explain that up until 1999, strategy at IBM was assigned to strategy experts–not managers–and it was an activity completed to satisfy senior management. It was “not an accurate reflection of what the business needed to do to be competitive and certainly not a blueprint for action.”

In 1999, then CEO Lou Gerstner assigned Bruce Harreld, SVP Strategy, to develop a new process to make strategy more relevant at IBM. What resulted was the “IBM Business Leadership Model.” The model encourages IBM’s general managers to analyze the perception gap between current and desired performance and attribute that to either a performance gap or an opportunity gap. The gaps are defined in terms of a business owner, financial metrics, and a specific time frame for addressing the gap.

Bruce Herrald said:

Closing the gap requires both strategic insight to assess the opportunities and threats and strategic execution to build the capabilities to deliver market results.

Strategy at IBM is now an ongoing discussion between general managers and senior management, and is no longer an annual process assigned to internal consultants.

The authors summed up three important points made by the IBM Business Leadership Model.

  1. Leadership by general managers requires both strategic insight and execution.
  2. Strategy is anchored on either a performance or opportunity gap as manifest in hard performance outcomes such as market share gain, margins, growth, or profit.
  3. Effective strategy is not simply the articulation of a strategic intent, but the linking of it to innovation, solid marketplace insight, and an appropriate business design.

How could you realign your core competencies in order to address performance issues and opportunities that you should be taking on?

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One thought on “Strategy: Dynamic Capabilities

  1. That is a very nice post about this interesting article. From a practitioner perspective the dynamic-capabilities perspective has the problem that it describes what companies have (i.e. resources and competencies). This understates the importance of the individual manager and best-practices. Consequently I have been looking increasingly into the strategy-as-practice research stream. Maybe this is also something for you

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