Dynamic Capabilities in Uncertain Environments

Learn and Adapt as an organization in uncertain and complex environments

We’re moving in a world that spins faster than it already does. New technologies are popping up that serve as enablers for the creation of new business models. Regular market structures change due to the entry of new competitors. New players fight for market share, existing companies fight to maintain their existing position.

One thing is certain, as the Greek philosopher Heraklit already mentioned thousands of years ago: “No one can enter the same river twice”. In other words: Everything is in a state of flow and nothing will last. An exciting challenge for everyone.

How do companies now deal with this challenge so that they can position themselves sustainably in these uncertain times?

The framework of Dynamic Capabilities, which was first mentioned in a working paper by David Teece, Gary Pisano, and Amy Shuen in 1997, can possibly provide guidance. In uncertain and complex environments, traditional approaches may no longer provide the right answers. It is essential to be able to react quickly to trends that generate impact faster than expected or even remained undetected. The term Dynamic Capabilities is not simply a synonym for strategy, but means the sum of skills and abilities to address new market opportunities or to develop new business models which are predetermined by the strategy.

It is tricky and laborious to develop such capabilities, but once done, it is very difficult for the competition to imitate them. As a reward, companies with strong dynamic capabilities can sense and seize opportunities before rivals do and reap the fruits accordingly.

Paul J. H. Schoemaker, Sohvi Heaton and David Teece mentioned in their article in the California Management Review three main pillars of capabilities that enable an organization to sense change, seize opportunities, and transform itself to navigate volatile future environments:

Sensing Change

Within this capability, appropriate scouting techniques must be developed in order to detect weak signals of change on the horizon, evaluate them accordingly and develop scenarios in order to form possible pictures of the future. The mindset applies: The future can be shaped; accordingly, an organization can put itself in such a position that it considers it to be optimal. Optimal in the sense of evaluating and exploiting opportunities early on and before the competition.

Seizing Opportunities

Sensing change is absolutely necessary but not enough to remain or become successful in the long term. Companies have to sense opportunities in a timely manner by successfully innovating and implementing new systems that take advantage of external changes. This is the second pillar of dynamic capabilities.

Particularly in complex environments, the cause / effect relationship cannot be determined in advance. For this reason, approaches are recommended that start the race with hypotheses in order to receive feedback from the market as quickly as possible – companies can learn from these insights and continuously adjust their assumptions accordingly.

Transforming the firm

It is often not sufficient for a company to adapt to changes incrementally. They may need to reshape themselves to reap full advantage of new business models. Periodic organizational renewal is the third pillar of dynamic capabilities.

In this Pillar, in addition to technical skills, facilitation in the development and empowerment of individuals, teams and leadership is essential: Aligning interests, developing trust, bridging differences, and engaging in deep dialogue are fields of activity in which it is vital to invest.

Enthusiast rund um Foresight, Strategie und Innovation. Patrick leitete diverse Digitalisierungsinitativen und hat sich um die Fragen gekümmert, wie sich ein Grossversicherer im Zukunftsumfeld von selbstfahrenden Fahrzeugen und digitalem Profiling verhalten kann. Gründete mit einem Kollegen um die Jahrtausendwende ein Startup im Webhosting Bereich, als das Internet noch in den Kinderschuhen steckte. Er ist aktuell verantwortlich für die Services Innovation und Digitale Business Transformation bei einer globalen Beratungsfirma und bildet sich am Imperial College in London weiter, um auch in Zukunft erfolgreich am Ball zu bleiben.

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