On the contingent value of dynamic capabilities for competitive advantage: The nonlinear moderating effect of environmental dynamism

• Published date: 01 February 2014
• Author: Oliver Schilke
• DOI: http://doi.org/10.1002/smj.2099
• Date: 01 February 2014

Strategic Management Journal

Strat. Mgmt. J.,35: 179– 203 (2014)

Published online EarlyView 6 May 2013 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2099

Received 22 January 2012;Final revision received 18 January 2013

ON THE CONTINGENT VALUE OF DYNAMIC

CAPABILITIES FOR COMPETITIVE ADVANTAGE:

THE NONLINEAR MODERATING EFFECT OF

ENVIRONMENTAL DYNAMISM

OLIVER SCHILKE*

Department of Sociology, University of California, Los Angeles, California, U.S.A.

This article suggests that dynamic capabilities can give the firm competitive advantage, but this

effect is contingent on the level of dynamism of the firm’s external environment. A nonlinear,

inverse U-shaped moderation is proposed, implying that the relationship between dynamic

capabilities and competitive advantage is strongest under intermediate levels of dynamism but

comparatively weaker when dynamism is low or high. This proposition is tested using data on

alliance management capability and new product development capability, two specific dynamic

capabilities widely recognized in prior research. Results based on longitudinal key informant

data from 279 firms support the account that these dynamic capabilities are more strongly

associated with competitive advantage in moderately dynamic than in stable or highly dynamic

environments. Copyright 2013 John Wiley & Sons, Ltd.

INTRODUCTION

The dynamic capabilities perspective has emerged

as one of the most influential theoretical lenses

in the study of strategic management over the

past decade. Despite its popularity in the litera-

ture, the dynamic capabilities perspective has been

criticized for its ill-defined boundary conditions

and its confounding discussion of the effect of

dynamic capabilities (e.g., Arend and Bromiley,

2009). One important source of concern is that

the presence of dynamic capabilities has frequently

been equated with environmental conditions char-

acterized by high dynamism (Zahra, Sapienza,

and Davidsson, 2006). A turbulent environment,

Keywords: dynamic capabilities; contingency perspec-

tive; competitive advantage; environmental dynamism;

survey research

*Correspondence to: Oliver Schilke, Department of Sociology,

University of California, Los Angeles, 264 Haines Hall, 375

Portola Plaza, Los Angeles, CA 90095– 1551, U.S.A. E-mail:

schilke@ucla.edu

Copyright 2013 John Wiley & Sons, Ltd.

however, is not necessarily a component or pre-

condition of dynamic capabilities, which can exist

even in stable environments (Helfat and Winter,

2011). Further, researchers have tended to iden-

tify dynamic capabilities post hoc, often equating

their existence with successful organizational out-

comes. This practice makes it difficult to separate

the existence of dynamic capabilities from their

effects (Helfat and Peteraf, 2009). Given the above

limitations, it has remained difficult to ascertain the

value of dynamic capabilities for a firm’s compet-

itive advantage, especially under different degrees

of dynamism.

This article empirically investigates the link

between dynamic capabilities and competitive

advantage and examines the efficacy of dynamic

capabilities under conditions of varying environ-

mental dynamism. To accomplish this goal, I con-

ceptualize dynamic capabilities in terms of orga-

nizational routines, thus making them measurable

and distinct from a firm’s competitive advantage

(Eisenhardt and Martin, 2000). I also separate

180 O. Schilke

dynamic capabilities from the firm’s external envi-

ronment, which I identify and measure as a con-

tingency factor (Helfat et al., 2007). Making this

distinction allows for considering and ultimately

reconciling the competing claims regarding the

effect of environmental dynamism on the relation-

ship between dynamic capabilities and competi-

tive advantage. Some propose that the dynamism

of a firm’s environment may enhance the effi-

cacy of dynamic capabilities and their potential

for competitive advantage (Drnevich and Kriauci-

unas, 2011; Winter, 2003; Zollo and Winter, 2002).

Other scholars, however, suggest that, on the con-

trary, dynamic capabilities may prove less effec-

tive in highly dynamic environments (Eisenhardt

and Martin, 2000; Schrey¨

ogg and Kliesch-Eberl,

2007).

The key contributions of this research are

twofold. First, this article makes a theoretical con-

tribution by offering a new, integrative position

on the relationship between dynamic capabilities,

environmental dynamism, and competitive advan-

tage. Integrating existing views, I propose a novel

inverse U-shaped moderating effect, implying that

the association between dynamic capabilities and

competitive advantage is strongest under inter-

mediate levels of dynamism but comparatively

weaker when dynamism is low or high. Second,

this study makes an empirical contribution by test-

ing this nonlinear interaction effect. In doing so,

this article contributes to reducing the scarcity

of empirical research on the consequences of

dynamic capabilities for organizational outcomes

(e.g., Helfat and Peteraf, 2009).

THEORETICAL BACKGROUND

Dynamic capabilities and competitive

advantage

The dynamic capabilities view may be regarded as

an extension of the resource-based view (RBV);

while the RBV primarily addresses a firm’s

existing resources, the dynamic capabilities view

emphasizes the reconfiguration of these resources

(Helfat and Peteraf, 2003). Prior research sug-

gests that dynamic capabilities are organiza-

tional routines that affect change in the firm’s

existing resource base (Eisenhardt and Martin,

2000; Helfat, 1997; Teece, Pisano, and Shuen,

1997). This definition emphasizes that dynamic

capabilities are based on organizational rou-

tines, commonly understood as learned, highly

patterned, repetitious behavioral patterns for

interdependent corporate actions (Pierce, Boerner,

and Teece, 2002; Winter, 2003; Zollo and Winter,

2002). Although the routines underlying dynamic

capabilities are not entirely fixed as people per-

form them across time and space, interpret them

subjectively, and ultimately introduce variations

(Feldman and Pentland, 2003), Winter (2003)

emphasizes that there are clear limits to the degree

to which they reflect flexible action with modest

continuity across occasions (also see Weick and

Sutcliffe, 2006). Therefore, it is important to

note that not all organizational change needs to

originate from dynamic capabilities; in particular,

contingent, creative improvisation is typically not

associated with dynamic capabilities as defined

here (Winter, 2003).

Interest in dynamic capabilities stems from their

potential influence on competitive advantage, the

key outcome variable in dynamic capabilities the-

ory (Teece et al., 1997). A firm is said to have a

competitive advantage when it enjoys greater suc-

cess than current or potential competitors in its

industry (Peteraf and Barney, 2003). Consistent

with this conceptualization, superior firm perfor-

mance relative to rivals commonly serves as an

empirical indicator of competitive advantage.

Traditionally, the literature has assumed a

universally positive effect of dynamic capabilities

on competitive advantage. By replacing exist-

ing resources, dynamic capabilities have been

suggested to create better matches between the

configuration of a firm’s resources and external

environmental conditions (e.g., Teece and Pisano,

1994).

The contingent role of environmental

dynamism

However, researchers have started to disagree

in their assessments of the value of dynamic

capabilities. Advocates of a more contingent view

posit that the benefits of dynamic capabilities

depend not only on the existence of the underlying

organizational routines, but also on the context in

which these capabilities are deployed (Levinthal,

2000; Sirmon and Hitt, 2009). Recognizing that

effective modes of organizational adaptation are

at least partly determined by environmental forces

(Hrebiniak and Joyce, 1985), recent theoretical

Copyright 2013 John Wiley & Sons, Ltd. Strat. Mgmt. J.,35: 179– 203 (2014)

DOI: 10.1002/smj