Person:

Pisano, Gary

The field of strategy has mounted an enormous effort to understand, define, predict, and measure how organizational capabilities shape competitive advantage. While the notion that capabilities influence strategy dates back to the work of Andrews (1971), attempts to formalize a “capabilities based” approach to strategy only began to take shape in the past twenty years. In particular, the publication of Teece and Pisano (1994), Teece, Pisano, and Shuen (1997), and Eisenhart and Martin (2000) works on “dynamic capabilities” triggered a flood of debate and discussion on the topic. Unfortunately, the literature on dynamic capabilities has become mired in endless debates about definitions and has engaged in an elusive search for properties that make organizations adaptable. This paper argues that the research program on dynamic capabilities needs to be reset around the fundamental strategic problem facing firms: how to identify and select capabilities that lead to competitive advantage. To this end, the paper develops a framework that attempts to connect firms’ capability search strategies with their strategies in product markets. It frames firms’ capability search strategies as choices among different types of capability enhancing investments. The key distinguishing feature of capabilities in this framework is their degree of fungibility: capabilities span a continuum ranging from highly general-purpose (e.g. quality management) to highly market-specific (e.g. knowing how to manufacture an airplane wing). To illustrate the potential of the framework to shed new light on traditional strategy questions, the paper applies the framework to explore some unexplained features of Penrosian diversification strategies. The paper concludes by suggesting a research agenda for dynamic capabilities.

It is widely presumed that in today’s globalized economy, the value of geographic clustering of manufacturing industries is no longer valuable. Manufacturing is represented as a highly mobile “commodity” that can be sourced from anywhere in the world where factor costs are favorable. This paper re-examines this assumption, and suggests that not all manufacturing is highly mobile. We suggest that manufacturing sectors should be viewed along a continuum from highly mobile to highly “sticky”. Manufacturing clusters can decline for two completely different reasons. The first is a change in technology that reduces the value of co-location (stickiness). This tends to lead to the decoupling of design and production activities and to a broad geographic diffusion of manufacturing. The second is a shift in the relative comparative advantage of clusters located in one region versus another. Under this scenario, geographic concentration is still valuable, but the center of production activity can shift from one location to another. The paper then analyzes how firm supply chain strategies impact stickiness and the survival manufacturing clusters.

The field of strategy has mounted an enormous effort to understand, define, predict, and measure how organizational capabilities shape competitive advantage. While the notion that capabilities influence strategy dates back to the work of Andrews (1971), attempts to formalize a “capabilities based” approach to strategy only began to take shape in the past twenty years. In particular, the publication of Teece and Pisano (1994) and Teece, Pisano, and Shuen (1997) work on “dynamic capabilities” triggered a flood of debate and discussion on the topic. Because strategy is a normative field, its theories must be evaluated in terms of how well they inform and impact practice. Judging by this standard, the dynamic research capabilities research program has come up short. It has become mired in endless debates about definitions and has engaged obsessively in an elusive search for properties that make organizations adaptable. In this paper, I argue that the research program on dynamic capabilities needs to be reset around the fundamental strategic problem facing firms: how to identify and select capabilities that lead to competitive advantage. I frame the firm’s capability strategy problem as one of choosing among different types of capability enhancing investments, ranging from general-purpose know-how to application-specific know-how. The framework also draws a distinction between investments designed to deepen the firm’s existing base of capabilities and those designed to broaden its repertoire into new realms. I explore the applicability of this framework to three general types of competitive circumstances: stable product market competition, Schumpeterian entry, and Penrosian dynamics. A major goal of the paper is to identify important gaps in our theoretical and empirical knowledge that should be a focus for future scholarly research.