Dynamic Capabilities in Public Organizations

Abstract

This article provides a review and synthesis of the extant literature on dynamic capabilities in public organizations. Although this theoretical perspective holds potential to enhance our limited understanding of how public organizations change in response to their increasingly turbulent and complex environments, it has received little attention in the public management field. Against this backdrop, this article seeks to contribute to future research on public sector change by advancing an analytical model that captures the antecedents, microfoundations and effects of dynamic capabilities in public organizations.

Key words:

• Dynamic capabilities
• public sector
• organizational change
• performance

Notes

In focusing on the acquisition of external knowledge as an important mechanism underlying capability renewal, the dynamic capability approach shares some common features with the absorptive capacity concept. Absorptive capacity is defined as a firm's ability ‘to recognize the value of new, external information, assimilate it and apply it to commercial end’ (Cohen and Levinthal, 1990: 128). This ability is largely a function of a firm's level of prior related knowledge. Building on the dynamic capability literature, Zahra and George (2002) extend Cohen and Levinthal's (1990) original conceptualization of absorptive capacity towards a more process-oriented interpretation. They view absorptive capacity as a dynamic capability which is embedded in different interrelated routines (see also Harvey et al., 2010). On the other hand, absorptive capacity research has influenced theorizing on dynamic capabilities. For example, Wang and Ahmed (2007) conceptualize absorptive capacity as a sub-dimension of the broader concept of dynamic capabilities.

It should be noted that the terms organizational competencies and capabilities are generally used interchangeably in the literature. Like capabilities, competencies build on organizational routines and refer to the firms' ability to perform an activity such as product development (which is, for example, based on technological and customer competencies) or firm acquisitions by using a set of input resources (Danneels, 2002; Dosi et al., 2008). A competence is labelled as ‘distinctive’, when it is difficult for others to replicate and enables an organization to perform a function (e.g. marketing, human resource management) in a manner superior to that of its competitors (e.g. Hitt and Ireland 1986).

It should be noted that there is necessarily a certain degree of overlap between the development and deployment of dynamic capabilities. The notion of dynamic capabilities as being bundles of organizational routines implies that they are ‘the outcome of trial and error learning and the selection and retention of prior behaviours’ (Gavetti and Levinthal, 2000). In this respect, Zollo and Winter (2002) emphasize that the initial development of a dynamic capability is not solely based on quasi-automatic experience accumulation but also involves more deliberate cognitive processes such as management's decisions to invest in knowledge articulation and codification activities. Likewise, the subsequent use of dynamic capabilities is influenced by individual behaviour, cognition, and emotion (see Ambrosini and Bowman, 2009). Over time, varying individual performances of the underlying routines can alter the nature or structure of a dynamic capability (ostensive aspect) (see Feldman and Pentland, 2003). From a practice perspective, dynamic capabilities can be even portrayed as emergent, i.e. they come about only through being performed by actors (Parmigiani and Howard-Grenville, 2011). I would like to thank one of the anonymous reviewers for mentioning this important point.