Dynamic capability refers to how well an organization can bring together, construct, and change internal and external abilities in order to remain viable amidst the diverse situations.(Eisenhardt, K. et al (2000). The principle basically assume that important competencies can assist in making short term advantages in competition. These short term competitive situations can then act as building blocks to another long term competitive advantage. (Teece, D.G. et.al 1997). This framework examines the ways through which firms make and attain wealth. This is particularly firms that operate in environments that are rapidly changing. This perspective sees a firm's competitive advantage as being vested on the firm's peculiar processes. These processes are particularly determined by what the firm owns, commonly referred to as the assets. The processes will also be determined by how the firm has performed specific functions over time.
The concept emphasizes the idea that in cases of technological changes internal firm adjustments are crucial to maintain a firm's competitive advantage. In particular, it points out that the firm is able to retain its competitive advantage if it is able to modify its internal technology, organization and management activities. The concept of dynamic capabilities arose from the recognition by its proponents that; by applying a strategic approach to firms, it was less helpful in analyzing the effects of the strategies put forward by the firm. These approaches were less helpful in knowing how competitive firms achieved competitiveness during periods of rapid change in technology and other changes. The concept is important especially today where there are many changes occurring in technology.
Before the development of this concept, there were some other approaches. One of these approaches was put forward by Potter (Teece, et.al 1997). This approach focused on the forces that enable the firm to achieve competitiveness. It emphasized that for a firm to achieve competitive advantage it had to embrace on the structure of the organization. It also placed emphasis on the fact that competitive advantage can be obtained from how an organization or firm conducts its activities. There was a second approach that focused on how firms can make their marketing activities be perfect and how the firms deter other competitors from entering the markets. The other approach looked at the firm's characteristics in relation to the other firms that compete in its market. It states that a firm needs to assess its internal capabilities and compare with other external disadvantages that can hinder its performance. Much has been done through research to identify the external factors that hinder a firm's performance. However, as Teece et al (1997) states, there is not much that has been done in coming up with strategies that a firm can use to compete effectively in the market by using its internal strengths and opportunities. Dynamic capabilities approach focuses on the ways of achieving competitive advantage by using a firm's opportunities and strengths (Barney, J.B.1995)
The concept of dynamic capabilities states that combination of competency, and assets can be used to achieve competitive advantage. This is particularly if resources and competences are well used and safeguarded. This is used to show how firms retain competitive advantage in cases where the environments change. It calls for the development of strategies of management that are difficult to imitate and combination of skills of the organization, functions and technology. The aspects that are proposed in this approach are the innovative development of new products and processes and transfer of technological knowledge.
There are, many types of dynamic capabilities that a firm can embrace in to achieve competitive advantage. New product development is just but one that is used by our firm. From the propositions made by the dynamic capabilities model, the firm should ensure that it develops products and services timely and with responsiveness to changes in the market. This must be coupled with the ability to have capable management personnel to be ale to coordinate the capabilities that are already in the ownership of the firm and also those that are outside the firm. In the case of new product development, the product or the process has to be developed when the product is needed by the customers so that there can be return from sales. The product must be unique so that it is difficult for competitors to imitate it. This comes with the need to re examine the firm's asset capability and make the necessary adjustments. The management has to look at the strategies that have been applied previously and their effectiveness. After this, the management looks at how these can be twisted so as to fit the new product or process that is to be developed. Timely responsiveness is a prerequisite that has made it possible for our firm to achieve competitive advantage.
The process and product development are usually designed in such a manner it is very difficult for other firms to copy or imitate. This is because the firm carries out aggressive process in gaining customer feedback. From this feed back, the firm can be able to get the very new customer needs such that the new products or processes are driven by what the customers need. By keeping a very close contact with the customers, it is possible to shift to new products and services immediately they are identified. This means that by the time a competitor learns the process of making a new product, the firm will have already earned from the first batch of sales. By the time the competitor learns the technicalities of a new product or process the customers are more likely to have shifted their needs to another product.
In the case of a new product development, some technological changes may be necessary. By having very smart dynamic capabilities the firm can be able to know how the existing technology can be adopted to make the new product or service. Some of the originally existing ways of doing things may need to be revised once a new technology is brought forward. A small change in technology may necessitate the disruption of the management structure within an organization. This may lead to negative changes if the firm is not in a position to alter its routines or management practice. This alteration is crucial because such a routine or a management style may be the sole source of a competitive advantage.
As Barney, J.B. (1995) identifies, a dynamic capability can not be bought. This is different from a resource that can be bought. Both assets and dynamic capabilities are used to achieve the comparative advantage, but dynamic capability can only be developed within a specific firm by re- engineering its routines or management practice. The dynamic capabilities are firm specific, unlike resources which are universal. Any firm that has access to resources can be said to have a competitive advantage but a specific firm needs to have dynamic capabilities that are specific to the firm. This is because these dynamic capabilities may be vested on a specific process, routine or combination of people, resources and routine processes. In fact, Teece et al (1997) observes that a dynamic capability can be found in any level of the firm's employees; the low level, middle level or the high-level management. It can also be just but a simple process that the firm has used over time. A dynamic capability can also be a peculiar path that the firm gas used over and over. Helfat, 2007 cites out that dynamic capabilities are crucial in strengthening other competitive advantages.