Dynamic capabilities and strategic management
Summary (3 min read)
1. Introduction
- Accounting for workforce diversity has become a central preoccupation among scholars who wish to explore the financial and non-financial impacts of diversity at a time when businesses have to make difficult strategic choices due to the economic, social and political turbulence that have come to characterise the early parts of the 21st century.
- Yet the results are inconclusive with research demonstrating conflicting diversity outcomes (Jayne & Dipboye, 2004; Joshi & Roh, 2009; Mannix & Neale, 2005).
- Furthermore, the findings highlight mixed outcomes for diversity which can be associated with positive outcomes such as low turnover, higher levels of innovation and creativity and improved performance, as well as negative outcomes such as lower levels of harmony, higher levels of conflict and low morale (Özbilgin & Tatli, 2008).
- The authors examine four distinct approaches to accounting for diversity outcomes in global organisations: Shareholder, stakeholder, regulation and global value chain.
2. Accounting for diversity impact: towards a broader perspective
- It is important to distinguish between studies on workforce diversity and diversity management in accounting for their respective interplay with organisational performance.
- Studies on workforce diversity tend to link differences that exist in the workforce with organisational outcomes (Tatli & Özbilgin, 2012a).
- Third, they often lack contextual assessment, ignoring the historical and geographic specificity of the insights that they make (See Tatli and Özbilgin 2012 for a review).
- Similarly, the impact of gender diversity varies with organisational setting.
- The relationship between team diversity and performance is characterised with complexities and moderated by a number of factors such as task motivation, team learning, and pro-diversity beliefs (Ely et al., 2012; Meyer & Schermuly, 2012; Winkler & Bouncken, 2011).
3. Method
- This paper is informed by semi-structured interviews with heads of diversity or finance and accounting leaders in 22 globally significant organisations.
- The interview schedule is designed to elicit comprehensive evidence on how organisations account for diversity outcomes.
- Seven out of 22 interviews were conducted face-to-face with senior managers working in UK branches.
- With the permission of the respondents, all interviews were taperecorded.
- While the authors adopted Strauss and Corbin’s (1990) coding procedures of open coding, axial coding and selective coding, they were cognizant of the necessity to have flexibility in using these procedures (Walker, and Myrick, 2006).
4. Findings and Analysis
- The authors interviews revealed that organisations accounted for diversity outcomes in narrow or broad ways.
- Organisational framing of diversity outcomes included a wide compliance with law, fairness at work, increased innovation and creativity, higher levels of employee well-being, improved employee engagement, improved customer satisfaction, better market reach, compliance with international standards, capturing the spirit of globalisation, increased competitiveness, and enhanced corporate reputation.
- Yet, their analysis which is reported below proposes ideal types of common approaches that were expressed in the interviews.
4.2. Stakeholder approach to accounting for diversity impact
- It is possible to account for diversity outcomes by focusing on a wider range of interests than shareholder value and profitability.
- That’s a message, it’s like the authors should be very much integrated with the communities they serve.
- And as a result of that, the authors don’t see many people in the workforce with any notable disability.
- The stakeholder approach is similar to the shareholder approach in the sense that workforce diversity is considered as a means to an end, reflecting on a wider range of interests, and it assumes that organisations can freely and voluntarily does not mean that all interests will be integrated in practice in the workplace and work process designs.
- It is not surprising then that stakeholder considerations alone have not been sufficient to tackle entrenched forms of inequality, unfairness and discrimination that plague labour market practices.
4.3. Regulatory approach to accounting for diversity impact
- The relationship between workforce diversity and organisational outcomes is governed by a large number of rules and resources.
- Regulation, i.e. the rules for allocating resources and framing actions, can take many forms, including industry regulation, market regulation, social regulation, legal regulation, all of which may include a mixture of voluntary as well as coercive measures.
- In formulating a regulatory approach to workforce diversity, practitioners consider both voluntary and coercive measures and operate at multiple contexts.
- And I suspect globally, it plays out in the same way in different ways.
- So in a sense, they are creating compulsion to look at it, simply maybe because of funding they will be forced to look at it.
4.4. Global value chain approach to accounting for diversity impact
- Expansion of the accounting repertoire for diversity’s impact to include voluntary and coercive regulation has opened up possibilities for discussing speed and effectiveness of diversity interventions.
- We’re getting used now to being owned from abroad and owned by people of very different backgrounds and cultures, different faith perspectives, different ethnicities and different approaches to cultural prioritisation, different focuses on the value of markets….
- I mentioned Bangladesh is 90% Muslim so you find in my workforce here, I would say is reflective of the 90% of the population, the balance being made up of Hindu and Christian.
- One organisation chose to assert universal standards and values, even when these may conflict with the espoused beliefs of the local branch:.
- If an organisation allows all diversity policies to be locally determined, there can be wide discrepancies and disparities between local settings across which the organisation operates.
5. Discussion and conclusions
- This paper identified four distinct approaches to accounting for diversity’s impact and argued that there is a need to move from narrow framing of diversity’s impact based around shareholder and stakeholder considerations towards a broader framing, which includes coercive regulation and global value chain.
- Yet, there are calls to broaden the frameworks of how the authors account for diversity outcomes in order to strengthen the diversity management practices nationally and these calls by introducing and exploring two approaches that have been previously overlooked.
- Taken together, the four approaches represent a more comprehensive understanding of accounting for diversity to include varied short-term and long-term, direct and indirect, and broad and narrow conceptions of the interplay between diversity management and organisational performance.
- In accounting for diversity management, the authors recognise that global organisations have different starting points and trajectories of development in terms of their approaches.
- They also need to reflect upon the global, regional and national context of political economy in order to assess the challenges and opportunities.
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Citations
13,128 citations
Cites background from "Dynamic capabilities and strategic ..."
...…theoretical framework for understanding how competitive advantage within firms is achieved and how that advantage might be sustained over time (Barney, 1991; Nelson, 1991; Penrose, 1959; Peteraf, 1993; Prahalad and Hamel, 1990; Schumpeter, 1934; Teece, Pisano, and Shuen, 1997; Wernerfelt, 1984)....
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...The literature characterizes dynamic capabilities as complicated routines that emerge from pathdependent processes (Nelson and Winter, 1982; Teece et al., 1997; Zollo and Winter, 1999)....
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Cites background from "Dynamic capabilities and strategic ..."
...In Teece and Pisano (1994) and Teece et al. (1997), we proposed three organizational and managerial processes—coordination/integrating, learning, and reconfiguring—as core elements of dynamic capabilities....
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...As noted in Teece et al. (1997), more decentralized organizations with greater local autonomy are less likely to be blindsided by market and technological developments....
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...It involves interpreting available information in whatever form it appears—a chart, a picture, a conversation at a trade show, news of scientific and technological breakthroughs, or the angst expressed by a frustrated customer....
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...In an earlier treatment (Teece et al., 1997: 530) it was noted that ‘we have merely sketched an outline for a dynamic capabilities approach.’...
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...Early statements of the dynamic capabilities framework can be found in Teece, Pisano, and Shuen (1990a, 1990b, 1997) and Teece and Pisano (1994)....
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References
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547 citations
"Dynamic capabilities and strategic ..." refers background in this paper
...from strategizing—that is, from limitations on competition which firms achieve through Normative implications rivals’ costs and exclusionary behavior (Teece, 1984). The competitive forces approach in The field of strategic management is avowedly normative. It seeks to guide those aspects of particular leads one to see concentrated industries as being attractive—market positions can be general management that have material effects on the survival and success of the business entershielded behind entry barriers, and rivals cos s can be raised. It also suggests that the sources prise. Unless these various approaches differ in terms of the framework and heuristics they offer of competitive advantage lie at the level of the industry, or possibly groups within an industry. management, then the discourse we have gone through is of limited immediate value. In this In text book presentations, there is almost no attention at all devoted to discovering, creating, paper, we have already alluded to the fact that the capabilities approach tends to steer managers and commercializing new sources of value. The dynamic capabilities and resources toward creating distinctive and difficult-to-imitate advantages and avoiding games with customers approaches clearly have a different orientation. They see competitive advantage stemming from and competitors. We now survey possible differences, recognizing that the paradigms are still in high-performance routines operating ‘inside th firm,’ shaped by processes and positions. Path their infancy and cannot confidently support strong normative conclusions. dependencies (including increasing returns) and technological opportunities mark the road ahead. Because of imperfect factor markets, or more Unit of analysis and analytic focus precisely the nontradability of ‘soft’ assets like values, culture, and organizational experience, Because in the capabilities and the resources framework business opportunities flow from a distinctive competences and capabilities generally cannot be acquired; they must be built. This firm’s unique processes, strategy analysis must be situational. 61 This is also true with the strategic sometimes takes years—possibly decades. In some cases, as when the competence is protected conflict approach. There is no algorithm for creating wealth for the entire industry. Prescripby patents, replication by a competitor is ineffectual as a means to access the technology. The tions they apply to industries or groups of firms at best suggest overall direction, and may indicate capabilities approach accordingly sees definite limits on strategic options, at least in the short errors to be avoided. In contrast, the competitive forces approach is not particularly firm specific; run. Competitive success occurs in part because of policies pursued and experience and efficiency it is industry and group specific. obtained in earlier periods. Competitive success can undoubtedly flow Strategic change from both strategizing and economizing, 59 but along with Williamson (1991) we believe that The competitive forces and the strategic conflict approach, since they pay little attention to skills, ‘economizing is more fundamental than strategizing ....
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...Teece, Institute of Management, where each paradigm might display some relative Innovation and Organization, Haas School of Business, Uniadvantage as both a useful descriptive and normaversity of California, Berkeley, CA 94720–1930, U.S.A. tive theory of competitive strategy. While numer1 For a review of the fundamental questions in the field of strategy, see Rumelt, Schendel, and Teece (1994). ous theories have been advanced over the past...
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...Related diversification—that is, diversification that builds upon or extends existing capabilities—is In this regard, we speculate that the dominance of competitive forces and the strategic conflict about the only form of diversification that a resources/capabilities framework is likely to view approaches in the United States may have som thing to do with observed differences in strategic as meritorious (Rumelt, 1974; Teece, 1980, 1982; Teeceet al., 1994). Such diversification will be approaches adopted by some U.S. and some foreign firms. Hayes (1985) has noted that American justifiable when the firms’ traditional markets decline....
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...While there is an emerging market for know-how (Teece, 1981), much market....
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526 citations
"Dynamic capabilities and strategic ..." refers background in this paper
...Cool and Schendel (1988) have shown that there are systematic and significant performance differences among firms which belong to the same strategic group within the U....
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450 citations
417 citations
"Dynamic capabilities and strategic ..." refers background in this paper
...Economic rents in the competitive forces framework are monopoly rents ( Teece, 1984 )....
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...This approach to strategy refiects its incubation inside the field of industrial organization and in particular the industrial stmcture school of Mason and Bain^ ( Teece, 1984 )....
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...This approach to strategyThe dominant paradigm in strategy at least during the 1980s was the competitive forces approach. reflects its incubation inside the field of industrial organization and in particular the industrial struc-Pioneered by Porter (1980), the competitive forces approach views the essence of competitive ture school of Mason and Bain3 (Teece, 1984). strategy formulation as ‘relating a company to its environment . . . [T]he key aspect of the firm’sStrategic conflict environment is the industry or industries in which it competes.’...
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...…advantage is more complex to ascertain in the framework. environments of rapid technological change where specific assets owned by heterogeneous firms can be expected to playEconomic rents in the competitive forces a larger role in explaining rents.framework are monopoly rents (Teece, 1984)....
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...One strand of this literature, often referred to as the 'resource-based perspective,' emphasizes firm-specific capabilities and assets and the existence of isolating mechanisms as the fundamental determinants of firm performance (Penrose, 1959; Rumelt, 1984; Teece, 1984; Wemerfelt, 1984).^ This perspective recognizes but does not attempt to explain the nature of the isolating mechanisms that enable entrepreneurial rents and ......
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Frequently Asked Questions (7)
Q2. Why does the capabilities approach tend to steer managers toward creating new sources of value?
Because of imperfect factor markets, or more Unit of analysis and analytic focus precisely the nontradability of ‘soft’ assets like values, culture, and organizational experience, Because in the capabilities and the resources framework business opportunities flow from adistinctive competences and capabilities generally cannot be acquired; they must be built.
Q3. What is the role of benchmarking in facilitating the transfer of practice?
Szulanski also and structured, trial and error and learning-by-doing are necessary, whereas in mature environments where the underly-discusses the role of benchmarking in facilitating the transfer of best practice.
Q4. What is the likely approach to a strategic conflict?
The strategic conflict approach is likelycompanies tend to favor ‘strategic leaps’ while, in contrast, Japanese and German companies tend to be a little more permissive; acquisitions that raise rivals’ costs or enable firms to effectuateto favor incremental, but rapid, improvements.
Q5. What is the role of the local market in determining the competitiveness of firms?
Porter (1990), for example, shows that differencesReplication in local product markets, local factor markets, and institutions play an important role in shapingTo understand imitation, one must first understand replication.
Q6. What does the capabilities approach tell us?
Brittain and Freeman (1980) using population ecology methodologies argued that an organization is 62 Cantwell shows that the technological competence of firmsquick to expand when there is a significant overpersists over time, gradually evolving through firm-specific lap between its core capabilities and those needed learning.
Q7. What is the idea that the understanding of processes is so key to process improvement?
the notion that the understanding of processes, both in production and in management, is theLippman and Rumelt (1992) have argued that some sources of competitive advantage are so key to process improvement.