An Integrative Delineation of the Determinants of Dynamic Capabilities: A Study in the Information Technology Industry.

Abstract

Dynamic capabilities are the capabilities of an organization to systematically change its resources base by sensing opportunities and making appropriate and timely decisions (Barreto, 2010; Teece, Pisano, & Shuen, 1997; Teece, 2007). Explaining dynamic capabilities is important as these capabilities affect various firm level outcomes such as strategic change in response to environmental developments, financial and non-financial performance, product and process innovations and alternative sources of competitive advantage. The literature on the determinants of dynamic capabilities is scattered and selective. Not all the possible determinants have been identified and tested empirically. There is a need for delineating the determinants comprehensively and develop an integrated framework that is testable and actionable. This study reviewed extant literature to articulate extensively the known determinants of dynamic capabilities. We identified gaps in extant literature and hypothesized risk orientation and change disposition as new determinants of dynamic capabilities. We integrated the newly conceptualized determinants (i.e. risk orientation and change disposition) with the main known determinants (i.e. organizational learning orientation, managerial human capital, managerial social capital and environmental dynamism) and built an integrative conceptual model of the determinants of dynamic capabilities. Further, we hypothesized relationships between the determinants and individual dimensions of dynamic capabilities i.e. the propensity of an organization to (a) sense opportunities, (b) make timely decisions, (c) make market oriented decisions and (d) change the resources base. This approach provided a more nuanced understanding of what dimension of dynamic capabilities is affected by each determinant. We tested our hypothesized model by carrying out an empirical study in the information technology (IT) industry which is characterized as being knowledge intensive, highly reliant on human resources, and faced with high levels of environmental dynamism. We collected primary data from top management team members of 233 organizations in the IT industry using a survey questionnaire and analyzed the data using partial least squares based structural equation modeling (PLS-SEM). In summary, the distinct contributions of the study are that it (a) Articulated comprehensively the determinants of dynamic capabilities; (b) Built an integrative model of the determinants; (c) Hypothesized and tested risk orientation and change disposition as new determinants of dynamic capabilities; and (d) Established relative importance among the determinants of dynamic capabilities.