1. 1
Dynamic Capabilities and their Microfoundations:
Implications for Strategic Management
David J. Teece
Institute for Business Innovation
Haas School of Business
University of California, Berkeley
September 15, 2010
*Based on “Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance”,
Strategic Management Journal, December 2007

2. Capabilities and Dynamic Capabilities
2

Capabilities are the organization’s ordinary ability to perform a set
of activities


Dynamic Capabilities are the ability to determine whether the
organization is performing the right activities, and then effectuate
necessary change




generally embedded in organizational routines/standard operating
procedures
“The capacity to create, extend, or modify the resource base”*
May be embedded in organizational routines
May also reside in one or a few individuals/leaders
Dynamic Capabilities set the speed with which the organization
aligns/realigns with requirements of and opportunities in the
business environment
*Dynamic Capabilities: Understanding Strategic Change in Organizations. Constance E. Helfat, Sydney Finkelstein, Will Mitchell,
Margaret A. Peteraf, Harbir Singh, David J. Teece, and Sidney G. Winter (Oxford: Blackwell, 2007).

3. What are Microfoundations?
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Microfoundations are “elements” of Dynamic Capabilities.
They consist of discrete process/methodologies/structures that
undergird clusters of dynamic capabilities
I. Routines/Methodologies

Organizational Routines


Ex: product development along a known trajectory
Analytical Methodologies

Ex: investment choices
II. Individual Acts and Action

Creative managerial and entrepreneurial acts

Ex: pioneering a new market

4. Three Clusters of Microfoundations*
4

Sensing
Identification and assessment of an opportunity
 Easiest to embed in the organization


Seizing


Mobilization of resources to address an opportunity and to
capture value
Transforming
Continued renewal
 Inherently difficult to routinize


Each cluster is supported by organizational process; but also
by the entrepreneurial and leadership capabilities of the
top management team
*“Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance”, Strategic
Management Journal, 28:13 (December 2007), 1319-1350.

5. Example of (Embedded) Microfoundations
for Sensing and Seizing
5

Mechanisms at IBM*
 Dozens
of new business ideas are considered twice yearly
 The most promising are vetted through multiple stages
 A few are launched with high-level support and protected
resources
 If milestones are met, the new business joins an existing
business unit
O’Reilly et al indicate that this process has added
billions in additional sales since its inception in 2000
*“Emerging Business Opportunities” at IBM (O’Reilly, Harreld, and Tushman, 2009)

6. Individual (Non-Routine) Action is also
Important
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Steve Jobs at Apple:
“There is no system. That doesn't mean we don't have
process... Process makes you more efficient. But
innovation comes from people meeting up in the
hallways... It's ad hoc meetings of six people called
by someone who thinks he has figured out the coolest
new thing ever and who wants to know what other
people think of his idea. And it comes from saying no
to 1,000 things to make sure we don't get on the
wrong track or try to do too much”*
*Quoted in P. Burrows, “The Seed of Apple's Innovation.” businessweek.com (October 12 2004)

7. Interrelationships Amongst Microfoundations
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The Dynamic Capabilities Framework postulates
relatively complex relationships among discrete
variables; but the framework is often silent as to
how these various elements interact
 The framework recognizes that there is extensive
and vibrant research activity on each
microfoundation – and it aspires to capture this
knowledge and integrate it into a broader
intellectual framework rooted in the theory of the
firm.


8. Intellectual Architecture of Dynamic Capabilities
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Source: Figure 1.4 (p.49) of David Teece “Dynamic Capabilities and Strategic Management: Organization for Innovation and Growth”

9. Conclusions
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
Microfoundations involve both routine and nonroutine activity. Research questions include:
 The
appropriate balance between routines and the
non-routine action of top management.
 Under what circumstances (if any) can change be
routinized?

Empirical research can use both large data sets
(e.g. Adner and Helfat, 2003) and in-depth case
studies.